TD Ameritrade to buy Scottrade in $4B cash-and-stock deal

OMAHA, Neb. -- Online brokerage TD Ameritrade is buying Scottrade in a $4 billion cash-and-stock deal that would significantly expand its branch network at a time when many financial firms are expanding automated adviser programs.

In the two-stage deal announced Monday, TD Bank Group will buy Scottrade Bank first from Scottrade Financial Services Inc. for $1.3 billion in cash, and Scottrade Bank will be folded into TD Bank.

Then, TD Ameritrade will buy Scottrade Financial Services for $2.7 billion in cash and stock. Part of that purchase will be financed by selling 11 million shares to TD Bank, which will continue to control 41 percent of TD Ameritrade's stock.

TD Ameritrade said the transaction adds significant scale to its retail business and more than quadruples the size of its network of about 100 branch offices.

TD Ameritrade CEO Tim Hockey said the branches should help it better serve clients and expand into more markets although the company probably will close about 150 of the 600 branches it will have after the deal.

"Financial decisions are very important to people and they like talking with someone they know and they can talk to in their community," Hockey said.

TD Ameritrade anticipates about $450 million in combined annual expense savings.

Combined, TD Ameritrade and Scottrade had $944 billion in total client assets and 600,000 average client trades per day for the year ended Sept. 30, on a pro forma basis.

"It gives us extraordinary scale," Hockey said. "With that scale, those investments in technology will be spread over more clients."

CFRA Research analyst Cathy Seifert cut her rating on TD Ameritrade's stock to "hold" from "buy," but she said the deal should provide a boost.

"We view positively AMTD's planned purchase, for $4B, of Scottrade Holdings, since it should help AMTD's slowing revenue growth," Seifert said.

Jefferies analyst Daniel Fannon said Scottrade is a good strategic fit with TD Ameritrade, and the deal makes sense given the potential cost savings.