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Charles Schwab will buy TD Ameritrade in $26 billion all-stock deal
Charles Schwab announced plans Monday to buy discount brokerage rival TD Ameritrade in an all-stock deal valued at $26 billion.
As part of the agreement, Ameritrade stockholders will receive 1.0837 Schwab shares for every share held, a 17% premium over the stock's 30-day average price before news of the deal broke. The deal is expected to close in the second half of 2020.
Schwab shares jumped 8% and TD Ameritrade's stock shot up 16% in trading on Thursday and Friday. Shares of TD Ameritrade closed up 7.6% higher to $51.78 on Monday, while Schwab shares rose 2.3% to $49.31.
The merging of the two biggest publicly traded discount brokers will create a mammoth with more than $5 trillion in client assets, $3.8 trillion from Schwab and $1.3 trillion from TD Ameritrade. The combined company will serve more than 24 million clients. San Francisco-based Schwab has a market value of $57.5 billion and Omaha-based TD Ameritrade has a $22.4 billion market cap.
"We believe the combination of our two great companies positions us to be competing and winning in the investment services business for the long run — the very long run," said Charles Schwab president and CEO Walter Bettinger.
Schwab's current shareholders will own 69% and TD Ameritrade's existing stockholders will own 18% of the combined company. TD Bank, which currently owns 43% of TD Ameritrade, will own the proportionate 13% of the new company.
Pending regulatory approval, the integration of the two firms is expected to take 18 months to 36 months after the deal is closed. The company is expecting $1.6 billion in integration spending over three years after closing. The combined company's headquarters will relocate to Schwab's new campus in Westlake, Texas.
The deal will create "a Goliath in Wealth Management," Wells Fargo senior analyst Mike Mayo said in a note to clients on Thursday, when talks of the merger were broken by CNBC's Becky Quick.
Brokerage industry shake-up
More consolidation in the brokerage industry is expected given the massive amount of disruption that has taken place, with all the major brokers dropping commission fees for trading in recent months. Schwab was the first of the major players to make the move, eliminating commissions in early October. Schwab's competitors, including Fidelity and TD Ameritrade, were quick to follow.
After dropping commissions, Schwab and TD Ameritrade's stocks were under pressure as investors worried that the lost commission revenue would pressure margins; however, Schwab proved its free trading is paying off in terms of new client accounts.
Pedestrians pass in front of a Charles Schwab bank branch in downtown Chicago, Illinois.
Christopher Dilts | Bloomberg | Getty Images
While some Wall Street analysts are worried the consolidation of two of the biggest players could flag antitrust issues, the company will only capture about 11% of client assets in the retail financial services market, management said on a conference call on Monday.
The new company will hold over a third of the RIA custody market, JMP Securities estimates.
The advantage to the Schwab-TD Ameritrade deal is the brokerage giant will be able to cut costs, stream new revenue opportunities and improve the platform for clients, said JMP Securities analyst Devin Ryan. Given the high amount of overlapping back-office operations and vendor costs, the company is expecting about $1.8 to $2 billion in cost savings, about 20% of the combined company's cost base.
TD Ameritrade CEO Tim Hockey previously announced plans to step down next February. The companies said Monday they will suspend the CEO search and have named TD Ameritrade Chief Financial Officer Stephen Boyle as TD Ameritrade's interim president and CEO.
TD Securities and J.P. Morgan served as financial advisors to TD Bank and Simpson Thacher & Bartlett LLP served as legal advisor. PJT Partners and Sandler O'Neill served as financial advisors and Wachtell, Lipton, Rosen & Katz acted as legal advisor to the Strategic Development Committee of the Board of Directors of TD Ameritrade. Credit Suisse Securities served as financial advisor to Charles Schwab and Davis Polk & Wardwell served as legal advisor.
The deal came as a shock to analysts on Wall Street, who pegged E-Trade as the most likely acquisition target among the smaller brokers. Shares of E-Trade are lower since news of the deal first broke last week.
The deal will likely pressure smaller brokers like Interactive Brokers, as well as Silicon Valley start-up Robinhood which kick-started free stock trading in 2013.
—with reporting from CNBC's Lauren Hirsch.
FAQs
The $26 billion deal between the two largest publicly traded discount brokers will create a brokerage mammoth with more than $5 trillion in client assets ($3.8 trillion from Schwab and $1.3 trillion from TD Ameritrade). Both stocks jumped on Thursday: Schwab was up 2% while TD Ameritrade shares jumped over 5%.
Is Schwab buying out TD Ameritrade? ›
Schwab closed its $26 billion acquisition of TD Ameritrade in late 2020, then spent more than three years moving millions of TD customers onto its platform. The transition was not entirely seamless.
How much did Charles Schwab pay for TD? ›
In November 2019, Charles Schwab announced its acquisition of TD Ameritrade for $26 billion.
Did Charles Schwab transition the final 10 of TD Ameritrade customers to its platform this week? ›
Over the weekend of May 11-12, 2024, we successfully transitioned ~1.8 million Ameritrade client accounts and ~$350 billion in assets to Schwab—the final 10 percent of the total Ameritrade client population. This transition group included many of Ameritrade's most engaged and active clients.
Who was bought out by Charles Schwab? ›
Notable Acquisitions of Charles Schwab
| Acquisition Date | Company Name | Founded Year |
|---|
| Oct 31, 2011 | Compliance11 | 2005 |
| Mar 21, 2011 | optionsXpress | 2000 |
| Nov 25, 2019 | TD Ameritrade | 1994 |
| Feb 24, 2020 | Wasmer Schroeder | 1987 |
1 more rowJul 11, 2024
In late 2019, Charles Schwab acquired TD Ameritrade and began integrating the two businesses. Over two years into the integration process, TD Ameritrade accounts will officially transition to Charles Schwab accounts over Labor Day weekend.
Will TD Ameritrade cease to exist? ›
The conversion of TDA accounts to Charles Schwab & CO., Inc. (SCH) is scheduled to be completed by September 5, 2023, at which time TD Ameritrade will cease to exist. Advisers who utilized TDA as their custodian need to decide immediately on whether to convert accounts to SCH or select an alternate custodian.
What will happen to my TD Ameritrade account? ›
Commissions do not affect our editors' opinions or evaluations. At the end of 2020, Charles Schwab completed its acquisition of TD Ameritrade. This means big changes for customers of TD Ameritrade. As the transition nears completion, all customers at TD Ameritrade will have their accounts moved over to Schwab.
Who owns the most shares of Charles Schwab? ›
We note that hedge funds don't have a meaningful investment in Charles Schwab. Our data shows that The Toronto-Dominion Bank is the largest shareholder with 12% of shares outstanding. In comparison, the second and third largest shareholders hold about 6.6% and 5.4% of the stock.
Who is the billionaire Schwab? ›
Born in 1937, Charles Schwab was 26 when he started an investment newsletter that would serve as the precursor to one of the largest financial service companies in the U.S. He founded First Commander Corp. in 1971, which took over publication of the newsletter and also began a securities brokerage.
TD Ameritrade offers numerous daily updates on individual stocks and economic data. It also offers stock-specific research from several independent research companies. Charles Schwab offers real depth in research. Clients get access to proprietary research and commentary from in-house analysts.
Is Charles Schwab or Fidelity better? ›
Fidelity is generally better for lower account balances (accounts less than $25,000) and direct crypto exposure. Charles Schwab is better for higher balances and offers a more comprehensive selection of advanced charting tools like the thinkorswim platform.
Is Charles Schwab going to use thinkorswim? ›
Trading platforms that give you the power to go deeper. Get ready to trade with the best of 'em. With award-winning thinkorswim® platforms now at Schwab, you'll get powerful features and real-time insights that let you dive deeper into the market and your trading strategies.
What is the Charles Schwab controversy? ›
It was determined that between March 2015 to November 2018, Charles Schwab misled customers and prospective investors by allowing them to believe that its robo-advisor service had no hidden fees, and it did not inform the clients about the cash drag on their investments.
Why are TD Ameritrade customers leaving Schwab? ›
MarketWatch has been in direct contact with dozens of TD Ameritrade users who say their accounts were moved to Schwab this week. Many of their biggest issues involved the Schwab interface and overall user experience, which many said is not up to the standard of their previous brokerage.
Why did Charles Schwab crash? ›
(Bloomberg) -- Charles Schwab Corp. shares suffered their biggest intraday drop since the depths of last year's regional-bank crisis after the investing giant warned it will have to shrink itself in order to protect profits.
Can I transfer my TD Ameritrade account to Charles Schwab? ›
An account transfer is the easier option to move your money from one institution to Schwab as is. For example, if you have a brokerage account with stocks, ETFs, or mutual funds, you can move over the entire account to Schwab while keeping the investments as they are (or, in-kind).
Who owns TD Ameritrade? ›
Welcome to Schwab—we're glad you're here. TD Ameritrade, Inc. has been acquired by Charles Schwab, and all accounts have been moved.
Is TD Ameritrade still good? ›
Yes, TD Ameritrade is a good brokerage for beginners. It offers plenty of education and investing advice, plus it's easy to navigate whether you're using the website or mobile app. Plus, commission-free trades, $0 account minimum, and robust support are perfect for those just getting started in the market.
