E-Trade Snaps Up Specialty Stock Service for $100M
By Michael Liedtke
AP Business Writer
Wednesday, April 10, 2002; 8:21 PM
SAN FRANCISCO –– E-Trade Group Inc. said Wednesday it will pay at least $100 million for a specialty service that will nearly double its stock trading volume and trump rival Ameritrade's plans to become the busiest online broker.
With the purchase of New York-based Tradescape and its portfolio of gung-ho stock traders, Menlo Park-based E-Trade expects its volume to balloon from an average of 114,000 trades during 2001 to more than 200,000 when the deal closes later this summer.
Omaha, Neb.-based Ameritrade projects a daily volume of 164,000 trades after it completes its $1.29 billion takeover of Datek, a deal announced Monday. San Francisco-based Charles Schwab, which boasts the most online brokerage accounts, handles about 152,000 online trades per day.
E-Trade expects Tradescape, founded in 1997, to give the company more than just bragging rights.
The deal will expose E-Trade to a new breed of customer — "highly active" traders who take their investments so seriously that they prefer not to buy and sell stocks from their home computers. Instead, these traders gather in 19 Tradescape offices around the country and immerse themselves in a whirl of information as they wheel and deal with the zeal of Wall Street professionals.
"These guys view this as if it's their job and they want to be doing it around other traders," said Jarrett Lilien, E-Trade's chief brokerage officer.
Like other online traders, E-Trade's brokerage business has suffered during the past two years as the stock market's steep downturn scared off casual day traders who had flocked to the Web in the late 1990s when unprofitable Internet companies soared in value.
Tradescape customers, though, have continued to trade at a robust rate even during the volatility of the past two years, making E-Trade's acquisition look like a good move, said Richard Repetto of Putnam Loveall Securities. "This helps diversify their business by giving them a new segment of the market," Repetto said.
As a privately held company, Tradescape doesn't disclose profits, but the company is apparently bullish about its prospects.
If Tradescape's business hits its "aggressive" earnings targets during the rest of this year and next year, E-Trade will boost the purchase price from $100 million to as much as $280 million.
Lilien said he won't be surprised if Tradescape reaches its financial goals and forces E-Trade to pay more. E-Trade expects Tradescape to help it make slightly more money this year and anticipates an earnings boost of as much as 10 percent next year, after factoring in the possibility the company might have to raise the purchase price.
E-Trade will pay the bill with its own stock, which gained 9 cents to close at $9.05 Wednesday on the New York Stock Exchange. The company announced the Tradescape deal after the market closed.
With the Tradescape acquisition, E-Trade also expands upon its effort to add more offices to its online network. The company has opened five "financial centers" in New York, San Francisco, Denver, Boston and Beverly Hills, as well as small several dozen branches within Target stores.
Tradescape's 20 offices are spread through 10 states: New York, Texas, Florida, New Jersey, Colorado, Connecticut, California, Georgia, Illinois and Wisconsin. Tradescape also has an office in the United Kingdom.
In a separate deal disclosed Wednesday, E-Trade said it will pay A.B. Watley $5 million for the ownership rights to stock trading technology that it has previously licensed for use on its site.
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