Charles Schwab, TD Ameritrade combine in $26B all-stock deal

NEW YORK — Charles Schwab is buying rival TD Ameritrade in a $26-billion US all-stock deal, a blockbuster agreement accelerated by massive disruption in the online brokerage industry.

The deal will see Toronto-Dominion Bank, which holds 43 per cent of TD Ameritrade’s stock, own about 13 per cent stake in the combined company.

“This transaction will deliver significant value for TD and provide us with an ownership stake in one of the most innovative and highly regarded investment firms in the U.S.,” TD Bank chief executive Bharat Masrani said in a statement.

“The combination of Schwab’s leading investment services capabilities with TD Ameritrade’s best-in-class direct investing platform will create an industry leader with a more diversified revenue base and even stronger growth profile.”

Competitive pressure has already forced brokerages to make it free for customers to trade U.S. stocks online, and Schwab’s buyout combines two of the biggest players in the industry. The tie-up creates a company so big, however, that it might draw sharp scrutiny from antitrust regulators. The combined company would have more than $5 trillion US in client assets under management.

“With this transaction, we will capitalize on the unique opportunity to build a firm with the soul of a challenger and the resources of a large financial services institution that will be uniquely positioned to serve the investment, trading and wealth management needs of investors across every phase of their financial journeys,” said Schwab CEO Walt Bettinger.

TD Ameritrade stockholders would receive 1.0837 Schwab shares for each TD Ameritrade share they own.

The transaction gives Schwab 12 million client accounts, $1.3 trillion US in client assets and about $5 billion US in annual revenue. The combined company is expected to control 24 million client accounts.

By itself, Schwab might control close to half the market for acting as a custodian for money managed by registered investment advisers, for example, while TD Ameritrade may control about 15% to 20%, according to Kyle Voigt, an analyst with Keefe, Bruyette & Woods.

The rewards for passing regulatory muster would be lucrative: A combined company “makes strong strategic sense,” would be able to cut costs and could bump up Schwab’s earnings per share by more than 25% over the long term, Voigt said.