NEW YORK (CNN/Money) -
Ameritrade Holdings Corp. said Monday it plans to buy rival Datek Online Holdings Corp. for nearly $1.3 billion in stock, creating the third-largest online brokerage firm in the United States.
The merger, creating a company with 2.7 million accounts and $43 billion in combined assets, would put Omaha, Neb.-based Ameritrade just behind competitors E-Trade Group (ET: up $0.12 to $9.03, Research, Estimates) and TD Waterhouse.
"We really fit together very very nicely, like a hand into a glove," Joe Moglia, Ameritrade Holding's CEO, said on CNNfn's Market Call. "We're looking at this as if we got a great bargain." Moglia will become the CEO of the combined company
Ameritrade officials said the new online brokerage firm would have 164,000 trades per day and about $800 million in annual revenue. Officials also said the company expects to realize financial savings of about $100 million after taxes.
A group of private investors in Datek, including Bain Capital, TA Associates and Silver Lake Partners, will receive 50 percent of the shares in the new company. The group, which paid $700 million for a 70 percent stake in Datek in December 2000, stands to gain a large return.
"When we combine Datek's products, tools and technology with Ameritrade's highly rated client service, we will establish an unbeatable proposition, especially for the active trader segment, by delivering a new standard of service and trading capabilities we know self-directed investors want," Datek Chairman and CEO Ed Nicoll said.
The transaction price does not include Datek's current cash or regulatory capital valued at $100 million, the companies said. Datek is believed to have an additional $200 million in cash on its balance sheet, sources close to the deal said.
The $1.3 billion price is a significant premium to the $1 billion price tag analysts initially placed on Jersey City, N.J.-based Datek, which also drew bids from E-Trade and TD Waterhouse owner Toronto-Dominion Bank (TD: down $0.14 to $27.38, Research, Estimates), sources said.
Sources close to the auction said the price was driven higher by several factors, including the strong interest in Datek by rivals who see few other acquisition candidates on the horizon, as well as Datek's profitable balance sheet, which includes a sizable chunk of cash -- a rare commodity in the industry right now.
Even so, the transaction values Datek at about $1,560 per active account, far higher than larger rivals E-Trade, which produces less than $1,100 per account, and even Ameritrade itself, with approximately $667 per account. Among the industry leaders, only Charles Schwab, at nearly $2,200 per account, is valued higher.
The deal comes at a tough time for Ameritrade, which also purchased National Discount Brokers from Germany's Deutsche Bank AG last year for $154 million. Already struggling amid a weak market, Ameritrade warned Friday that its fiscal second-quarter earnings would be at the low end of its previously published range due to continued declines in customer stock trading.
The company also cut its revenue expectations for the second quarter to $105 million to $110 million from its earlier view of $111 million to $135 million.
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Such factors have helped push the company's stock down more than 85 percent from its all-time high achieved in 1999, when Ameritrade (AMTD: down $0.05 to $6.25, Research, Estimates) climbed to nearly $50 per share.
The stock rose in Monday trading and closed at $6.30 on Friday, off 37 percent from its 52-week high of $10.02.
Officials of the two companies said they expect to close the deal, which is subject to regulatory and shareholder approvals, in the next three months.
--from staff and wire reports