TD Ameritrade and its largest shareholder TD Bank have agreed to acquire online brokerage Scottrade for an estimated $4 billion, marking a new wave of consolidation in a market hard hit by robo-advisors and a switch away from day trading to passive investments by consumers.
Under the terms of the cash and shares sale, Scottrade Bank will merge with TD Bank, which has concurrently upped its stake in TD Ameritrade to 41.4% through a purchase of $400 million in new common equity.
Scottrade Bank's tangible book value stands at approximately $1.3 billion from holdings of $13 billion in cash and securities, $4 billion in loans and leases and $15 billion in sweep deposits from Scottrade.
The firm held $1.04 billion in revenue in 2015 - showing minimal uplift from 2014 - according to a recent analysis by Wells Fargo, indicating slowing returns in a contracting market.
TD Ameritrade will take over Scottrade’s brokerage operations for about $2.7 billion, while Toronto-Dominion intends to shell out $1.3 billion for the firm's banking operations. The deal is expected to close in the second half of 2017.
TD Ameritrade expects to save about $450 million annually in combined expenses following the merger.
"This announcement allows TD and TD Ameritrade to further strengthen our relationship." says Bharat Masrani, group president and CEO, TD Bank Group. "We are pleased to see TD Ameritrade expand its business and solidify its leadership position in the market."