Kennedy Cabot to Be Bought by Canadian Bank

In the second major purchase of a local discount brokerage firm in just two months, Canada’s fifth-largest bank said Thursday it would pay about $155 million for Kennedy, Cabot & Co., the Beverly Hills discounter known for its aggressive advertising.

Toronto-Dominion Bank said its New York brokerage arm, Waterhouse Investor Services Inc., would buy Kennedy Cabot and expand the discount firm nationwide.

Kennedy Cabot was started in 1960 by David Paul Kane, who became a familiar figure to many Southern California investors through his twice-a-day television commentary programs. The firm serves 140,000 clients through its 14 offices in California, including those in Santa Monica, Fresno and San Francisco, and one in Seattle.

Discount brokerage firms--which charge lower commissions to buy and sell stocks than full service firms do--are being bought by large banks scrambling to be the dominant player in the financial services industry. In August, Mellon Bank of Pittsburgh said it would buy Los Angeles discount firm Pacific Brokerage Services Inc. in a deal estimated at $140 million.

“Big banks like a [Toronto-Dominion] or a Mellon desperately want to leave the realm of ‘bank’ and enter the realm of ‘broad-based financial services firm,’ ” said Brock Vanderliet, an analyst with Keefe, Bruyette & Woods in New York. “One way you do that is buy a brokerage firm.”

As part of the deal, Kennedy Cabot would retain its name and current management.

Always an ingenious self-promoter, Kane named Kennedy Cabot after John F. Kennedy, a Democrat he admired, and after former GOP vice presidential candidate Henry Cabot Lodge, as a nod to his mother, who was a Republican. A former veteran who once ran a gas station in Los Angeles, Kane was often pictured in full-page newspaper ads for Kennedy Cabot. He sold his majority stake in 1990 and retired in 1993.

Kennedy Cabot’s management stresses that Kane is no longer involved at the firm and says the company is a much different place today.

“This is a positive step forward for Kennedy Cabot as it offers customers an expanded array of services,” said President John M. Gebbia, who will be selling his majority ownership in Kennedy Cabot with the deal. Gebbia would remain president after the sale.

“Waterhouse’s technology and mutual fund program will add value and convenience for our customers,” Gebbia said.

Waterhouse, which was recently ranked the best leading online discount trading firm in the U.S. by Smart Money magazine, is expected to enhance the online trading services at Kennedy Cabot, which has almost no computer-based trading.

“The California market is a very attractive market--there’s so much wealth with active traders who tend to have bigger accounts,” said Duncan Gibson, executive vice president with Toronto-Dominion Bank, now the third-largest discounter in the world, behind Charles Schwab & Co. and Fidelity Brokerage Services.

“We’ve been searching for entries into the U.S. market--that’s why we brought Waterhouse and are buying Kennedy. We believe this business is going global,” Gibson said.

The move is the latest global expansion move by one of Canada’s six major banks, which dominate the financial services industry in their country. In July, second-ranked Canadian Imperial Bank of Commerce acquired mid-sized Wall Street brokerage Oppenheimer & Co. and followed that purchase with the acquisition of Australian broker Eyres Reed Ltd.

The Kennedy Cabot deal, which still requires approval by regulators, is expected to close by year-end.