Ameritrade Confirms Talks With TD Waterhouse

Online discount brokerages Ameritrade Holding Corp. and TD Waterhouse USA are discussing a possible merger, the companies said Tuesday.

Analysts said a deal could be worth up to $3 billion and probably would be structured so Ameritrade owned the lion’s share of the combined company.

Omaha-based Ameritrade last month rebuffed a takeover overture from rival E-Trade Financial Corp., which offered Ameritrade shareholders 47.5% of the combined company plus $1.5 billion in cash. Ameritrade said it wasn’t for sale.

In a brief statement Tuesday, Ameritrade and TD Waterhouse USA’s parent company, Toronto-Dominion Bank, said there were no assurances a deal would be consummated, or what the terms of a transaction might be.

Analysts said additional consolidation in the online brokerage business was inevitable, as the sector’s players look for added heft to cut costs to offset depressed trading volumes.

David Trone, an analyst at Fox-Pitt, Kelton, said in a research note that Ameritrade shareholders “should benefit nicely from any consolidation event involving the company.”

A key question is whether Ameritrade would use an acquisition of TD Waterhouse USA as a “strategic expansion into the ‘investor’ space,” Trone said. At present, Ameritrade’s customers are primarily traders.

Heavy competition for a shrinking audience of traders has helped to push online brokerage commissions down sharply in this decade, but analysts say further price cuts may not provide firms with much of a competitive advantage.

E-Trade and Charles Schwab Corp. have increasingly been offering products and services geared more toward long-term investors than traders.

Trone said E-Trade still could come in with its own offer for TD Waterhouse USA or could boost its bid for Ameritrade.

Ameritrade shares rose 47 cents to a 52-week high of $14.86. Toronto-Dominion shares gained $1.18 to $42.53, also a 52-week high.

E-Trade added 25 cents to $12.35 and Schwab was up 1 cent to $11.34.