A new brokerage giant will be created by the merger of Charles Schwab Corp and TD Ameritrade Holding Corp with the former acquiring the later in an all-stock deal that has been valued by the companies at $26 billion.
The international brokerage industry is currently undergoing a turmoil period because of price wars.
Analysts say that the combining of the two companies is set to leave a strong impact on the global retail brokerage industry as the new entity will have total retail brokerage industry at $5 trillion. This deal is also expected to put pressure on smaller rival companies to go for mergers to strengthen their positions. Analysts however said that the deal will likely draw close scrutiny from regulators.
New and more nimble startups are providing strong competition and taking out marketing share from the established traditional companies in the discount brokerage business because the new startups are managing to reduce costs by elimination of commissions in stock trades
Last month, Schwab did away with commissions and was the first major brokerage firm to do so. That step has been followed by others in the industry including Fidelity Investments, E*Trade Financial Corp and TD Ameritrade.
“In a low, or no fees world … the pressure will be on other financial services rivals to try to keep up, or to gain further scale themselves,” Bankrate.com senior economic analyst Mark Hamrick said.
While regulatory attention to the deal is likely to be accorded, analysts say that it should get the green light because deal will provide some leverage to Schwab in the price war.
“The industry will continue to have large players and we won’t think it will derail a deal,” said Stephen Biggar, director of financial institutions research at Argus Research.
According to a note from KBW last week, the about 65% to 70% of investment account assets will be with the new merged entity.
Ameritrade stockholders will get 1.0837 Schwab shares for every share held, or $52.23 based on Schwab’s Friday close under the merge agreement that is expected to close by the second half of 2020.
TD Ameritrade CEO Tim Hockey is due to step down in February. The CEO search will be suspended for now, the companies said and added that TD’s interim president and CEO will be TD Ameritrade Chief Financial Officer Stephen Boyle.
According to a report by the CNBC last week, it is expected that the new merged company will be headed by Schwab’s Chief Executive Officer Walt Bettinger.
(Adapted from Reuters.com)