Discount broker TD Ameritrade Inc. has teamed up with major shareholder Toronto-Dominion Bank to make a joint bid for a coveted rival, Scottrade Financial Services Inc., which is exploring a sale that's expected to fetch $4-billion (U.S.).
Privately owned Scottrade is the among the five largest U.S. discount brokers, although only roughly half the size of TD Ameritrade. In late September, Bloomberg reported the company was on the auction block.
Sources familiar with the sale told The Globe and Mail that TD Ameritrade and its 42-per-cent owner TD Bank made a joint, non-binding offer for Scottrade earlier this month. Rival offers are expected from competitors such as E*Trade, Charles Schwab and U.S. banks, and there is no assurance that the joint TD bid will be successful, or that Scottrade will be sold. Spokespersons for TD Bank, TD Ameritrade and Scottrade declined comment.
St. Louis-based Scottrade has four distinct lines of business that include a bank with $16-billion of assets and a network of 500 branches. The bank and bricks-and-mortar branches would be difficult for rival U.S. online brokers to swallow, analysts say, and that gives TD Ameritrade an advantage in any bidding war, as Toronto-based TD Bank could potentially acquire Scottrade's banking assets and branches, while Omaha-based TD Ameritrade buys the core discount broker business.
Scottrade's bank has approximately $2.5-billion of residential mortgages and $700-million of commercial loans and leases, according to U.S. regulatory filings.
Over all, Scottrade's client base and assets under management are half those of TD Ameritrade, a publicly traded company with a $19.4-billion market capitalization, $763-billion in assets and 6.9 million client accounts. The opportunities and efficiencies that would come from buying Scottrade could boost TD Ameritrade earnings by 15 per cent, according to a recent report from investment bank Sandler O'Neill + Partners.
TD Bank CEO Bharat Masrani has made a number of large, complex U.S. acquisitions over his career and has made it clear that the bank's strategy is to continue expanding by acquiring smaller platforms.
In September, TD Bank acquired New York-based Albert Fried & Co., a boutique securities dealer, and announced plans to expand the business. During a recent quarterly call with analysts, Mr. Masrani said: "We have a stated strategy of looking at acquisitions in the U.S. I've previously said that we would certainly look at any asset plays."
TD Ameritrade has a relatively new CEO, Tim Hockey, who was appointed in January, 2016, after a successful run as head of TD Bank's Canadian retail business. Sources familiar with the appointment said Mr. Hockey took the job with a growth mandate from his board and TD Bank. The firm has a history of expanding through acquisition, as TD Ameritrade became a market leader out of a 2006 merger between rival firms, one owned by the Toronto-based bank.
If TD Ameritrade reached a deal to acquire Scottrade, the company would likely fund part of the purchase by issuing up to $2-billion in stock, and analysts said TD Bank is expected to step up for a significant portion of the shares to maintain its 42 per cent stake.
Scottrade CEO Rodger Riney founded the company in 1980 and has built it into a market leader with more than 3,000 employees. One Canadian investment banker who has dealt with Scottrade cautioned it may be difficult for TD Ameritrade to complete a transaction, as Mr. Riney has turned down takeover offers in the past and is likely to have an aggressive view of what the company is worth.