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Ameritrade mulls Knight/Trimark sale
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January 31, 2000: 12:16 p.m. ET
Online broker's CEO hunting for overseas partners, may sell Knight/Trimark stake
By Staff Writer Tom Johnson
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DAVOS, Switzerland (CNNfn) - J. Joe Ricketts has made a career of allowing people to take risks with their money. Yet he can't seem to shake the skepticism surrounding the $200 million gamble he plans to take on advertising this year.
Despite the recent cost concerns raised by analysts, Ameritrade's chairman and co-chief executive has no plans to scale back his company's aggressive expansion plans, which he told CNNfn will include a foray into Europe and quite possibly selling the nation's No. 6 online broker's stake in Knight/Trimark Group Inc.
"In order for us to maintain a leadership position worldwide, we're going to need additional financing," Ricketts said in an interview at the World Economic Forum. "It will all come down to what we want to do overseas."
Although Ricketts plans to step down as Ameritrade's co-CEO at the end of next month, he indicated the company is rapidly exploring several options that would significantly enhance the company's presence overseas, beginning in Europe.
Ricketts said he met with several potential partners in London two weeks ago and is now sifting through the various options. Although he would not rule out an acquisition - or even having Ameritrade (AMTD: Research, Estimates), the nation's No. 6 online broker being acquired itself - Ricketts said the most likely scenario involved the company seeking out a partnership relationship.
"We're not going to follow the Schwab or Fidelity model," he said. "Both of them took their brains overseas and failed. We're going to do partnerships so we can know our customers."
Knight/Trimark on the block?
Still, Ricketts admitted such ambitious expansion plans will ultimately require additional capital. Although he would not rule out a secondary offering, which the company announced and then scrapped last summer, Ricketts said he "probably won't go back to the market."
One possible solution is selling the company's more than 7 percent stake in Knight/Trimark (NITE: Research, Estimates), the nation's leading maker in Nasdaq securities, although Ricketts said his preference is to tap an existing credit line.
"My preference is to borrow," he said. "But Knight/Trimark is not our primary business. So if the situation continues like it is, then we'll probably sell it to get more capital."
Ameritrade's need for cash comes as Ricketts, who along with his family controls about 50 percent of Ameritrade's stock, is one year into an ambitious marketing plan that see the company spend at least $200 million this fiscal year on advertising.
The strategy has drawn heavy fire from analysts, many of whom believe the company's high expenses will effectively keep its bottom line from growing in concert with its soaring revenues.
Credit Suisse First Boston James Marks, for instant, recently trimmed his expected fiscal year losses for Ameritrade to 17 cents per share from 12 cents per share citing the company's higher marketing expenses. The revised estimate came just one day after the company reported fiscal first-quarter losses three cents better than what analysts were expecting.
Ricketts only shrugged his shoulders when asked about such treatment. As a competitor of many of the brokerage houses that follow and grade his company, Ricketts doubts seriously he gets fair shake from many analysts. He recalled with some agitation how he actually turned away a Merrill Lynch analyst recently that wanted to pick up coverage in his company.
"Once we get by the next couple of quarters, they will be able to see the results the advertising will bring," he said.
Still, investors appear to remain skeptical.
Since hitting a 52-week high of 62-3/4 last April, Ameritrade's stock has been battered by Wall Street. The stock closed at 16-7/16 Friday and has steadily declined recently despite its better-than-expected earnings report earlier this month.
Ricketts declined to give his opinion on where the stock deserved to be trading, but was clearly unhappy with its current levels.
"Our stock price didn't deserve to be 60 last year and it doesn't deserve to be 17 now," he said.
From discount to full-service broker?
Another aspect of Ameritrade's growth plans are its new online investment bank, launched in tandem with Charles Schwab & Co and TD Waterhouse Group Inc.
Ameritrade joined the deal to give its clients more access to initial public offerings, which they were routinely being shut out. However, Ricketts also wanted access to in-depth research reports such a venture could provide.
The venture would seem to align Ameritrade more with companies like Schwab (SCH: Research, Estimates), which has expanded from being a discount broker to one structured to better provide its clients with various levels of research and advisory services. But Ricketts said while his company does plan to offer more services for a higher cost, it ultimately plans to stay loyal to its frugal roots.
He also expressed the desire to draw a major research firm into the deal to help mitigate the costs of building a research department itself. His first choice, he said, would be doing a deal with Fidelity Investments, the nation's largest privately-held investment manager.
"Whether they'll decide to do it remains to be seen," he said. "But I'd hat to have them go off and do something on their own."
Ricketts will officially step down as Ameritrade's co-chief executive at the end of next month, handing the company's day-to-day operations to Thomas Lewis. Although he still intends to spend 20-25 days per month in Ameritrade's corporate offices in his capacity of chairman, Ricketts admits he is readily turn over control of the company he founded
"I'm not enjoying it as much as I used to," he said. "Tom is 48, he understands the technology and he is excited about all of the changes. I am putting the company in very capable hands." 
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