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Toronto Dominion mulls spin-off
$10 billion valuation possible for discount broker
By Emily Church, CBS MarketWatch
Last Update: 4:31 PM ET Jan 26, 1999Earnings Headlines
Earnings Calendar
NEW YORK (CBS.MW) -- Toronto Dominion on Tuesday said it may sell up to
20 percent of its discount brokerage business -- including its
Waterhouse Securities in the U.S. -- to the public.
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Some analysts say TD's (TD) widespread brokerage businesses could see a market valuation of as high as $10 billion. The discount business is
known as Green Line Investor Services in Canada (www.greenline.ca).
Toronto Dominion shares ended at 40 3/4, up 3/4.
TD's looking at a spin-off as one way to "improve (the bank's)
flexibility with regard to taking initiatives in the U.S.
"This move will demonstrate the value of this business to shareholders
and even more importantly, could provide increased opportunity to pursue key strategic intitiatives and acquisitions," said CEO A. Charles Baillie. See press release.
Deal ahead?
A successful stock sale would raise the cash, or currency in the form of stock, that TD would need to strike a deal with the top remaining
independent U.S. discount brokerages, most of which carry high market
valuations.
"I think part of the issue here is that as long as the discount
brokerage business was a subsidiary, Toronto Dominion couldn't get full market credit for owning it and they wouldn't have the currency they need to do an acquisition or any other financial events," said Bill Burnham, an industry analyst at Credit Suisse First Boston.
Market valuations of the discount brokers have been soaring as online
trading captures more market share.
Charles Schwab Corp. (SCH) carries a $25 billion market capitalization. The brokerage last reported volume of 152,000 trades a day; Waterhouse, which is in the U.S. top five, last posted volume at 67,000 a day, Burnham said.
"Waterhouse has been built through acquisitions. I don't think going
public would change that strategy," he said.
Among the major non-aligned in the online space include Ameritrade
(AMTD), E-Group (EGRP) and Datek. Ameritrade officials confirmed
recently that they are talking with other brokerages to expand online.
Some in the industry say buying a rival brokerage outright costs less
per customer than growing the business internally, due to marketing
costs. See full story.
Emily Church is a reporter for CBS MarketWatch.
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