Thursday, January 08, 2009

TD Ameritrade acquires thinkorswim. I did NOT see this one coming.

Here’s a press release that dropped in to my email box this morning.  I will do some follow-up with the appropriate parties next week.  In the meantime, here’s the news as it is presented by the companies involved, so it’s a little fluffier than what I would write. 

I am not surprised that TOS was acquired, even though they were taken over by Investools not so long ago.  I figured there would be a broker in the mix at some point, but didn’t expect that broker to be AMTD. 

-------------------------------- text of press release follows -----------------------------

Omaha, Neb. and New York, NY – January 8, 2009 – TD AMERITRADE (NASDAQ: AMTD) and thinkorswim Group Inc. (NASDAQ: SWIM) today announced that they have entered into a definitive agreement for TD AMERITRADE to acquire thinkorswim in a cash and stock deal valued at approximately $606 million as of Jan. 7, 2009.(2) This acquisition underscores TD AMERITRADE’s position as a successful industry consolidator.

thinkorswim is among the fastest growing online brokerage firms and has unique trading and investor education capabilities, particularly for the fastest growing segment of the industry – options trading.(3) Over the 12-month period ended Sept. 30, 2008, the company generated $380 million in revenue and $87 million in pre-tax income. It has approximately 87,000 funded retail brokerage accounts, each placing approximately 176 trades per year, more than $3 billion in client assets and more than 375,000 education graduates.(4)

Extending our Market Share Leadership
TD AMERITRADE is the current industry leader in the number of equity trades placed each day, and thinkorswim currently leads the industry in retail options trades placed each day. The combination of these two complementary firms will enhance the Company’s position, making TD AMERITRADE the new industry leader in the number of options trades placed each day.(1)

Advancing our Growth Strategy
This deal advances TD AMERITRADE’s growth strategy for its active trader client segment by introducing new trading functionality for traders, including advanced options trading, futures, foreign exchange trading and portfolio margining. TD AMERITRADE is uniquely positioned to leverage the Investools education offering as an acquisition channel and to help deepen the relationships it has with its nearly seven million existing retail client accounts. The Company plans to expand the offering over time to include programs for long-term investing, helping to further drive its asset gathering strategy.

“This transaction is directly aligned with our growth strategy, creating scale for the trading side of our business and, more importantly, advancing our trading strategy by several years,” said Fred Tomczyk, president and chief executive officer at TD AMERITRADE. “The thinkorswim team is very talented, and their innovative approach has led to outstanding achievements in technology and education. Together, we will extend our leadership in the industry with a best-in-class platform for traders, investors and registered investment advisors.

“We have a strong, stable balance sheet. We are well-capitalized. We have strong cash flow – all of which put us in a unique position to be opportunistic in the current economic environment,” Fred Tomczyk continued. “This transaction will improve our competitive standing in several key areas and position us for greater success and enhanced growth prospects. It is consistent with our strategy to improve our competitive position in this environment and manage for the other side of the cycle.”

“We are excited about this transaction with TD AMERITRADE, as it will provide a premium to our current share price for our shareholders and access to a wider range of Web and software-based trading and education technology for our clients. It is also an opportunity for our employees to contribute to accelerated growth at TD AMERITRADE,” said Lee Barba, chairman and chief executive officer of thinkorswim. “We believe this combination will enhance the Company’s leadership position in the investment services industry by providing the kind of highly compelling trading technology and education-based services that investors demand in today’s rapidly moving markets.”

High-Value Clients
This combination will add a fast-growing, highly active and engaged group of thinkorswim traders to the TD AMERITRADE family, which is reflected in the data highlighted below:(4)

Industry-leading growth rate, including a 161 percent increase in Daily Average Revenue Trades (DARTs) and an 82 percent rise in client accounts;
Approximately 49,000 DARTs, for a combined, pro-forma total of 350,000 trades per day; and
Approximately 37,000 options trades per day, for a combined, pro-forma total of 73,000 options trades per day.

thinkorswim clients should expect no immediate impact to their accounts or how they trade. All clients will receive more detailed information about what they can expect from the combined company after the acquisition is completed.

Terms of the Transaction
The principal terms of the transaction include the following:

TD AMERITRADE will acquire thinkorswim for approximately $606 million, which includes $225 million to be paid in cash and the issuance of approximately 28 million shares of TD AMERITRADE common stock to thinkorswim shareholders.(2) At closing, each share of thinkorswim will be exchanged for $3.34 in cash and 0.3980 of a TD AMERITRADE share. This represents a 46 percent premium based on the 30-day average exchange ratio, and a 29 percent premium based on the 90-day average exchange ratio.
TD AMERITRADE intends to initiate a new stock buyback program that will equal the approximately 28 million shares issued in the acquisition.
TD AMERITRADE expects the transaction to be accretive by approximately three to seven percent of fiscal 2010 GAAP earnings and 10 to 15 percent 12 months following the completed integration, which includes the benefit to be received from the intended buyback program.
TD AMERITRADE will retain key members of thinkorswim management. Mr. Barba will have an active role in the transition, and thinkorswim founders Tom Sosnoff and Scott Sheridan will join TD AMERITRADE after the transaction closes.

The transaction is subject to approval by thinkorswim stockholders, regulatory approvals and customary closing conditions.  TD AMERITRADE and thinkorswim expect the deal to close within the next six months.

(1) Source: Based upon the reports filed publicly by TD AMERITRADE, E*Trade, Schwab, optionsXpress, Fidelity and thinkorswim for the 12 months ended Sept. 30, 2008.  TD AMERITRADE DARTs do not include non-revenue generating mutual fund trades.

(2) The estimated total transaction value is based on the closing price of TD AMERITRADE common stock on Wednesday, Jan. 7, 2009 and the number of fully diluted thinkorswim common shares outstanding at the offer value on Jan. 5, 2009.  The purchase price for accounting purposes will be determined upon the closing of the acquisition and will depend on TD AMERITRADE’s stock price and the number of thinkorswim shares outstanding at that time.

(3) Source: thinkorswim and competitor company filings as of Sept. 30, 2008

(4) Source: thinkorswim company filings for the 12 months ended Sept. 30, 2008. The growth rate referenced for DARTs was calculated comparing the average retail DARTs for the 12 months ended Sept. 30, 2008, to the average retail DARTs for the 12 months ended Sept. 30, 2007. The growth rate referenced for accounts was calculated comparing the number of accounts on Sept. 30, 2008 to the number of accounts on Sept. 30, 2007. Any pro-forma totals represent the combination of thinkorswim and TD AMERITRADE company filings for the last 12 months ended Sept. 30, 2008.

(5) TD AMERITRADE, Inc., member FINRA (http://www.FINRA.org) /SIPC (http://www.SIPC.org), receives clearing and custodial services from TD AMERITRADE Clearing, Inc., member FINRA/SIPC. TD AMERITRADE, Inc. and TD AMERITRADE Clearing, Inc. are subsidiaries of TD AMERITRADE Holding Corporation.

(6) More information on the Forbes award is available at http://www.forbes.com/platinum.

Posted by twcarey on 01/08 at 07:50 AM
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