American tycoon Charles Schwab has officially agreed to acquire TD Ameritrade (AMTD) in an all-stock deal worth around $26 billion, the businesses announced on Monday.
Under the deal, TD Ameritrade investors will earn 1,0837 Schwab stock per share of TD Ameritrade, reflecting a premium of 17 percent over the 30-day volume-weighted average value ratio as of November 20.
The acquisition, which first appeared as speculation last week, followed Schwab's decision last month to abolish commissions for its retail customers, triggering a so-called "no commissions" battle in the online brokerage sector which battered the market and caused major shifts to earnings estimates.
"With this transaction, we will take advantage of the unique opportunity to build a company with the soul of a challenger and the resources of a large financial services institution that will be uniquely positioned to serve investors' investment, trading and wealth management needs throughout their financial journey," said Schwab chief executive officer Walt Bettinger.
The agreement, approved by both companies' board of directors, will be subject to regulatory approvals and other standard closing approvals.
Senior economic analyst Mark Hamrick of Bankrate.com pointed to other smaller rivals now facing increased competitive pressure.
"In an environment with small or no costs, and one where interest rates are low and efficiencies obtained from the use of advanced technology is strong, there will be stress on other competitors for financial services to try to keep pace or achieve more volume," Hamrick said.
Hamrick added that the threat is that these companies will lose a significant market share, even in smaller communities where more "private brick-and-mortar financial services are complicated to get through."
TD Ameritrade increased 3.36 percent at $49.73, while Charles Schwab dropped 0.91 percent to $47.76. Rival E*Trade Financial (ETFC) increased by 0.6 percent and Interactive Brokers Group (IBKR) rose 1.33 percent.
The joint venture would be a behemoth of a brokerage. With more than $5 trillion in company capital, it will have 24 million customer accounts. Schwab and TD Ameritrade have about $25 billion in combined annual sales.
Schwab said it would go to "nil" just a couple of days after the smaller counterpart of the Interactive Brokers Group (IBKR) said the commissions had stopped. Yet Schwab's action sparked an unprecedented price war, with everyone quickly following suit with TD Ameritrade, E-Trade, Fidelity, Ally Invest (ALLY) and other smaller online brokers.
Traditional discount brokers all faced intense competition from Robinhood, a popular millennials trading app that was launched with no commission business model a few years ago.
