E-Trade to Pay at Least $100 Million for Tradescape
E-Trade Group Inc. said Wednesday that it will pay at least $100 million for a specialty service that will nearly double its stock trading volume and trump rival Ameritrade Holding Corp.’s plans to be the busiest online broker.
With the purchase of New York-based Tradescape Corp. and its portfolio of gung-ho stock traders, Menlo Park, Calif.-based E-Trade expects its volume to balloon from a daily average of 114,000 trades in 2001 to more than 200,000 when the deal closes this summer.
Omaha-based Ameritrade projects a daily volume of 164,000 trades after it completes its $1.3-billion takeover of Datek Online Holdings Corp., a deal announced Monday. San Francisco-based Charles Schwab Corp., which boasts the most online brokerage accounts, handles about 152,000 online trades daily.
E-Trade expects Tradescape, founded in 1997, to give the company more than just bragging rights.
The deal will expose E-Trade to a new breed of customer--”highly active” traders who take their investments so seriously that they prefer not to buy and sell stocks from their home computers. Instead, these traders gather in 19 Tradescape offices around the country and immerse themselves in a whirl of information as they wheel and deal with the zeal of Wall Street professionals.
“These guys view this as if it’s their job and they want to be doing it around other traders,” said Jarrett Lilien, E-Trade’s chief brokerage officer.
Like other online brokerages, E-Trade’s business has suffered during the last two years as the stock market’s steep downturn scared off casual day traders who had flocked to the Web in the late 1990s when unprofitable Internet companies soared in value.
Tradescape customers, though, have continued to trade at a robust rate even during the volatility of the last two years, making E-Trade’s acquisition look like a good move, said analyst Richard Repetto of Putnam Lovell Securities.
“This helps diversify their business by giving them a new segment of the market,” Repetto said.
E-Trade has been diversifying in the other direction over the last year, adding banking services and other non-trader-oriented services as Wall Street’s deep bear market has soured many investors on stocks.
As a privately held company, Tradescape doesn’t disclose profit, but the company is apparently bullish about its prospects: If Tradescape’s business hits its aggressive earnings targets during the rest of this year and next year, E-Trade has agreed to boost the purchase price from $100 million to as much as $280 million.
E-Trade will pay in stock. Its shares Wednesday gained 9 cents to close at $9.05 on the New York Stock Exchange before the news was announced. They slipped to $9 in after-hours trading.
Tradescape’s offices are spread through 10 states: New York, Texas, Florida, New Jersey, Colorado, Connecticut, California, Georgia, Illinois and Wisconsin.
In a separate deal Wednesday, E-Trade said it will pay brokerage A.B. Watley Group Inc. $5 million for the ownership rights to stock trading technology that it has previously licensed for use on its site.
