New York-based E*Trade Financial is to buy US online brokerage HarrisDirect from Canada's BMO Financial Group for $700 million in cash.
In a statement, E*Trade says the HarrisDirect acquisition is expected to generate 'pretax operating synergies' of $186 million, with $114 million from cost cuts and $72 million from additional revenues. After an integration period, the acquisition is expected to add 17 cents a share to annual earnings.
HarrisDirect currently has around 430,000 customer accounts with an average account balance of more than $70,000 and executes about 15,000 trades a day.
E*Trade said the acquisition will immediately boost its daily average revenue trades to 130,000. The deal will increase its overall account total to four million and raise its total customer assets to $130 billion.
Mitchell Caplan, CEO, E*Trade Financial, says: "With the acquisition of HarrisDirect, we take a strategic step in further evolving our franchise. We accelerate our growth goals by extending our asset gathering strategy and fully leveraging customer cash, order flow and borrowing relationships across our integrated platform."
E*Trade shares rose $1.47, or 9.9%, to $16.33 in morning trading on the New York Stock Exchange.
Tony Comper, president and CEO, BMO Financial Group, says the decision to sell Harrisdirect followed an assessment of the unit's ability to compete in the market.
"Given the additional amount of capital that would have been required to grow the business and remain competitive in the current environment of consolidation, we concluded that Harrisdirect would be more valuable to another participant in the online brokerage industry," says Comper.
BMO says the transaction is expected to close by its fiscal year-end in October 2005.
The acquisition by E*Trade follows its failure to buy rival online brokerage Ameritrade earlier this year. E*Trades efforts were thwarted in June when Ameritrade signed a deal to acquire Canadian broker TD Waterhouse.