Ameritrade to buy Datek for $1.3 billion
By Reuters
April 8, 2002, 4:40 AM PT
update Online brokerage Ameritrade Holding on Sunday agreed to buy closely held rival Datek Online Holdings for nearly $1.3 billion in stock, aiming to gain valuable scale as it seeks to fight an ongoing, industrywide slump.
The transaction, which ends an intense three-month auction for Datek, will give Ameritrade about 2.7 million online trading accounts, the companies said, moving it just below industry stalwarts E*Trade Financial and TD Waterhouse.
It is a significant victory for Omaha, Neb.-based Ameritrade, which has struggled to build revenue and earnings amid the continuing volatility on Wall Street, and was initially considered a long shot to buy Datek.
Combined, the companies will boast $43 billion in customer assets and average 164,000 trades per day. That will leave it behind only Charles Schwab in average trades per day, according to a recent Salomon Smith Barney research report.
Terms of the transaction call for Ameritrade to issue slightly more than 200 million shares to Datek's current owners--a consortium of private equity holders led by Bain Capital, which will own about half of the combined company after the transaction is closed.
Ameritrade said the deal would immediately add to its earnings and cash flow by an unspecified amount. The company also expects to gain financial advantages of about $100 million after tax when the deal is fully realized.
The transaction price does not include Datek's current cash or regulatory capital valued at $100 million, the companies said. Datek is believed to have another $200 million in cash on its balance sheet, sources close to the deal said.
The deal represents a sizable return for Datek's owners, which includes Bain, TA Associates and Silver Lake Partners. The consortium paid $700 million for a 70 percent stake in the firm in December 2000.
Island ECN, the electronic communications network that handles many of Datek's trades and is 10 percent owned by the company, is not included in the transaction.
The $1.3 billion price is a significant premium to the $1 billion price tag analysts initially placed on Jersey City, N.J.-based Datek, which also drew bids from E*Trade and TD Waterhouse owner Toronto-Dominion Bank, sources said.
Sources close to the auction said the price was driven higher by several factors, including the strong interest in Datek by rivals who see few other acquisition candidates on the horizon, as well as Datek's profitable balance sheet, which includes a sizable chunk of cash--a rare commodity in the industry right now.
Even so, the transaction values Datek at about $1,560 per active account, far higher than larger rivals E*Trade, which trades at less than $1,100 per account, and even Ameritrade itself, which trades at approximately $667 per account.
Among the industry leaders, only Schwab, which trades at nearly $2,200 per account, is valued higher.
The deal comes at tough time for Ameritrade, which also purchased National Discount Brokers from Germany's Deutsche Bank last year for $154 million.
Already struggling amid a weak market, Ameritrade on Friday warned that its fiscal second-quarter earnings would be at the low end of its previously published range because of to continued declines in customer stock trading.
The company also cut its revenue expectations for the second quarter to $105 million to $110 million, from its earlier view of $111 million to $135 million.
Such factors have helped push the company's stock down more than 85 percent from its all-time high achieved in 1999, when Ameritrade climbed to nearly $50 per share.
The stock closed Friday at $6.30 per share on the Nasdaq market, off 37 percent from its 52-week high of $10.02. By comparison, E*Trade is 30 percent off its 52-week high, and Schwab closed Friday 46 percent off its one-year high.
Still, of all the retail online brokerages, analysts considered Ameritrade and Datek most similar because they both focus almost exclusively on trading. Others, such as E*Trade and Schwab, offer more diversified product lines.
The deal may also provide additional stability to Ameritrade's customer base.
Though Datek's number of accounts have been dropping--along with every other company's in the industry--since last fall, its average trades per day has slowly been climbing again.
As of the end of January, the last time the company provided figures, Datek had nearly 825,100 accounts, down about 1.5 percent from the month before, while its average trades per day climbed about 2 percent to 79,600. |
