Schwab and TD Ameritrade Reveal Mega Merger Plan

The Charles Schwab Corporation and TD Ameritrade Holding Corporation announced their entrance into a definitive agreement for Schwab to acquire TD Ameritrade in an all-stock transaction.

According to the firms, the value of the deal is approximately $26 billion. Under the agreement, TD Ameritrade stockholders will receive 1.0837 Schwab shares for each TD Ameritrade share, which the firms say represents a 17% premium over the 30-day volume weighted average price exchange ratio as of November 20, 2019.

Coinciding with the announcement, TD Ameritrade’s board of directors has suspended its CEO search, naming Stephen Boyle, TD Ameritrade CFO, as the company’s interim president and CEO. Boyle will assume leadership of the company effective immediately, guiding its management team through its fiscal 2020 plan and the proposed integration with Schwab.

The news of this mega merger comes after a busy year of consolidation for the financial services industry generally, and in the retirement planning sector in particular. And it’s not just recordkeepers and asset managers that are merging. Established retirement plan advisory practices have also been involved in significant M&A activity in 2019.

Schwab President and CEO Walt Bettinger says this deal shouldn’t be a surprise to the industry, given the shared ethos of the two companies.

“We have long respected TD Ameritrade since our early days pioneering the discount brokerage industry, and as a fellow advocate for investors and independent investment advisers,” Bettinger says. “Together, we share a passion for breaking down barriers for investors and advisers through a combination of low cost, great service and technology.”

Bettinger adds that the combined entity “will be uniquely positioned to serve the investment, trading and wealth management needs of investors across every phase of their financial journeys.”

“Partnering with Schwab on this transformative opportunity makes the right strategic and financial sense for TD Ameritrade,” Boyle says. “We share a common history—a journey since 1975 that has made Wall Street more accessible and financial dreams more attainable for millions of Americans. … Together, we can deliver the ultimate client experience for retail investors and independent registered investment advisers.”

According to Bettinger and Boyle, this transaction creates “significant strategic benefits” for the combined organization and is expected to deliver attractive returns for the owners of both companies. Specifically, the acquisition will add to Schwab approximately 12 million client accounts, $1.3 trillion in client assets, and approximately $5 billion in annual revenue. This added scale is expected to result in lower operating expenses as a percentage of client assets and to help fund enhanced client experience capabilities in the future. The resulting combined firm is expected to serve 24 million client accounts with more than $5 trillion in client assets.

According to the firms, post-closing, The Toronto-Dominion Bank (TD Bank), which currently holds approximately 43% of TD Ameritrade’s common stock, will have an estimated aggregate ownership position of approximately 13% in the combined company, with other TD Ameritrade stockholders and existing Schwab stockholders holding approximately 18% and 69%, respectively. TD Bank’s voting stake will be capped at 9.9%, with the balance of its position held in a new, non-voting class of Schwab common stock. Additional details regarding stockholder matters, including upcoming votes, will be provided in the subsequent merger proxy materials.

The transaction is subject to customary closing conditions, including receipt of applicable regulatory approvals and approval by the stockholders of both companies. Closing is also subject to a “majority of the minority” TD Ameritrade stockholder approval condition, which means that the transaction must be approved by holders of a majority of the outstanding TD Ameritrade shares, other than TD Bank and certain other shareholders of TD Ameritrade that have entered into voting agreements. The parties expect the transaction to close successfully in the second half of 2020, and integration efforts to begin immediately thereafter.

The integration of the two firms is expected to take between 18 and 36 months, following the close of the transaction. Schwab has named Senior COO Joe Martinetto to oversee the integration initiative, assisted by a team of experts from both Schwab and TD Ameritrade. As part of the integration process, the corporate headquarters of the combined company will eventually relocate to Schwab’s new campus in Westlake, Texas.

The 2019 PLANSPONSOR Recordkeeping Survey includes a detailed profile of Charles Schwab’s recordkeeping business. The survey report also breaks down the top recordkeepers according to various metrics. In the analysis, Charles Schwab ranks fifth in terms of total 401(k) plans with more than $200 million in assets. The firm ranks second in terms of 401(k) assets per participant, 10th in terms of total Section 409A nonqualified deferred compensation (NQDC) assets/liabilities, and second in terms of its percentage of NQDC plans bundled with qualified defined contribution (DC) plan administration.