Ameritrade is to buy rival TD Waterhouse in a $2.9 billion deal that signals further consolidation in the online brokerage industry.
The agreement is expected to generate annual merger synergies of $578 million in an industry where margins have been depressed by cut-throat competition for customers. The combined group will meld Ameritrade's pure online brokerage business with TD Waterhouse's more expansive banking and financial services operations.
Shares in both companies soared as analysts welcomed a deal that might help arrest the spiralling decline in broker commissions.
The agreement has frozen out rival E*Trade, which earlier this month offered Ameritrade a 49.5% stake in a combined company and $2bn in cash. E*Trade abandoned sale talks with TD Waterhouse in January last year after the two companies failed to agree terms over control of the combined firm.
Under the deal with Ameritrade, Toronto-Dominion Bank would have a 32% ownership stake in the new company. Upon closing, TD Bank would immediately offer to buy an additional 8% of the company at $16 a share, valuing the deal at $2.9 billion overall.
The new company will become the world's largest online brokerage by daily volume, overtaking current industry leader Charles Schwab. San Francisco-based Schwab remains top dog in customer assets, however, its $1 trillion-plus total dwarfing the $143 billion claimed by Ameritrade and TD Waterhouse.