Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Non-Tech : E*Trade (NYSE:ET) -- Ignore unavailable to you. Want to Upgrade?

To: Curtis E. Bemis who wrote (9635)	12/3/1999 12:04:00 PM
From: Mr. Mo	Read Replies (1) \| Respond to of 13953

From today's WSJ.... -------------------------------------------------------------------------------- December 3, 1999 -------------------------------------------------------------------------------- As Deadline Looms, Shareholders Sweat Out ETrade, Telebanc Deal By GASTON F. CERON Dow Jones Newswires NEW YORK -- Between now and Dec. 31, most investors will likely spend their time shopping, planning millennium parties and making year-end adjustments to their stock portfolios. But for shareholders of ETrade Group Inc. and Telebanc Financial Corp., the next 29 days figure to be a little more stressful as they sweat out a looming New Year's Eve deadline for closing a $1.1 billion merger between the two online companies. ETrade Announces Stock Deal to Acquire Online Firm Telebanc The merger, which would join Telebanc's Internet banking business with ETrade's popular online brokerage service, was unveiled in June and had been expected to close by the fall. But the quest for regulatory approval has put this off, making investors nervous. "This deal is going on longer and longer than anyone anticipated," said Greg Smith, an online brokerage analyst at Hambrecht & Quist in San Francisco. "It's anybody's guess at this point if this can close before the end of the year." Under terms of the merger, Telebanc shareholders will get 1.05 ETrade shares for each Telebanc share held. On June 1, the day when the merger was announced, Telebanc shares closed at $37.25, a discount of 9.8% to the $41.28 that the stock was worth under the terms of the merger. The spread between what Telebanc's stock was valued at and where it actually traded fluctuated wildly over the next several months, based on daily closing prices. The discount fell as low as 3.84% on two separate occasions and reached a high of 20.9% on Wednesday. A spread this large "reflects a tremendous amount of skepticism" about the deal's chances for success, said one arbitrageur who has followed the merger. Indeed, investors have been growing skittish since last week, when ETrade and Telebanc filed merger documents with the Securities and Exchange Commission. The documents were made available to investors after the close of the market on Nov. 22. That day, Telebanc closed at $33.56, or a 7.2% discount to the $36.16 the stock was worth based on ETrade's close of $34.44. By the end of the next day, after investors had had a chance to digest the information, this percentage had more than doubled. What did the companies say that spooked investors so much? Well, for starters, the SEC filings stated that ETrade and Telebanc may not get regulatory approval for the deal from the Office of Thrift Supervision before Dec. 31. As a savings and loan holding company, Telebanc falls under the OTs' supervision. This is important because after that date, either company can walk away from the merger, which is always a possibility if someone has second thoughts or if the regulatory approval process looks as if it will last a while. Additionally, there is the thorny issue of Softbank Corp.'s partial ownership, through one of its units, of ETrade. If Softbank's stake amounts to more than 25%, then the OTS can deem that Softbank has "conclusive control" of ETrade, according to a spokesman for the OTS. If so, then he says the OTS could regulate Softbank as a savings and loan holding company -- something that Softbank doesn't want. ETrade and Telebanc are pleading their case with the OTS, but negotiations over Softbank's ownership could delay approval of the merger. According to last week's filings, Softbank now owns 27.5% of ETrade, though the exact percentage may change from time to time. One possibility is that Softbank could lower its stake in ETrade to push the merger through. A spokesman for Softbank in the U.S. declined to comment. A spokesman for ETrade, Patrick Di Chiro, said "There are certainly some things that could be done" regarding the Softbank ownership issue, declining to be more specific. The most worrisome factor is really the nearing of the Dec. 31 deadline for getting the deal done. Spokesmen for both ETrade and Telebanc said the companies are doing everything in their power to close the deal by the end of the year. But the OTS spokesman said the merger application isn't yet deemed complete, as the companies are still exchanging information with the OTS, and he points out that the OTS typically has up to 60 days after an application is complete to render a decision. CIBC World Markets online brokerage analyst Amar Mehta says the stock market's uncertainty stems from the fact that ETrade and Telebanc haven't said what they will do if the merger drags out beyond Dec. 31. Clearly, some investors are reading into this that the deal may be in serious trouble if the end of the year comes and goes without regulatory approval or an agreement by the companies to extend the deadline. The merger seemed like a no-brainer when it was unveiled back in June, and H&Q analyst Smith says the strategic and fundamental reasons behind it "are still intact." But some analysts have speculated that if the deal takes far too long, E*Trade and Telebanc could be better off simply calling it quits. Such a step seems drastic, but it would remove the monkey off the companies' backs.