Ameritrade has won the intense bidding for privately-held Datek Online Holdings, announcing Monday it would shell out about $1.29 billion to create the world’s largest online brokerage firm in terms of daily equity trades.
The agreement, which was negotiated late into Sunday evening, brings an end to an intense auction which drew interest from some of the biggest names in the online trading space.
“The merger unites the two firms with the fastest growing account base, lowest cost operations and highest operating margins in the online brokerage industry. At closing it will be the largest online brokerage measured by equity trades per day,” Ameritrade said in a statement.
The $1.29 billion price tag means Ameritrade would pay $1,531 for each of Datek’s approximately 840,000 accounts. To pay for the deal, Ameritrade is doubling its outstanding shares.
The transaction, which is expected to close within 90 days would leave the Ricketts family with 27.6 percent of Ameritrade stock while Datek backers Bain Capital will own approximately 10.7 percent. Datek investors TA Associates would own approximately 9 percent; Silver Lake Partners 7.7 percent; Group Arnault approximately 4.8 percent and Advent International would own approximately 3.1 percent.
According to the two companies, the combination is expected to be immediately accretive and cash flow positive, with synergies of approximately $100 million after-tax when fully realized.
Ameritrade said combined firm would have about 164,000 trades per day and over 2.76 million accounts. It is expected to manage approximately $43 billion in client assets and rake in total revenues of $800 million.
The acquisition now pushed the Omaha, Nebraska-based Ameritrade ahead of E*Trade and Charles Schwab in the online trading space and, having paid a hefty price for Datek, analysts believe Ameritrade would need to cut costs in a hurry to make the deal work.
“Though this is a pretty penny to pay for a small online broker, there was stiff competition for Datek. The purchase just might make Ameritrade a viable firm. For the deal to work, the combined company will need to make significant cost cuts, but in our opinion, this is possible. The increase in accounts should allow Ameritrade to realize significant economies of scale,” said MorningStar analyst Rachel Barnard.
“This is a wonderful day for our company,” said J. Joe Ricketts, the Ameritrade chairman and founder, whose ownership stake had been reduced from 55 percent to 27 percent.
Datek CEO Ed Nicoll said the combined entity creates an “unbeatable proposition.”
“When we combine Datek’s products, tools and technology with Ameritrade’s highly-rated client service, we will establish an unbeatable proposition, especially for the active trader segment, by delivering a new standard of service and trading capabilities we know self-directed investors want,” Nicoll said.
When the deal closes, Ricketts would assume the title of chairman of the combined board, which would include two additional Ameritrade appointees. Three directors from Datek and three independent members would make up the remainder of the board.
The transaction comes as Ameritrade cut its second quarter revenue projections to $105 million to $110 million, down from earlier expectations of between $111 million to $135 million.
