Though Ameritrade Holding Corp. rejected its merger overtures, E-Trade Financial Corp. reiterated its offer Thursday for the rival online brokerage.
With online brokerage trading volume down and a trading commission price war reducing revenue, the business is ripe for consolidation. Even if this deal does not happen, analysts said that neither Ameritrade, of Omaha, nor E-Trade, of New York, can grow without a deal.
And while no one was predicting that E-Trade would try a hostile bid, the company made it clear that it thinks its offer is a good one.
"The investment community has clearly stated a need for consolidation in this industry," said Mitchell Caplan, E-Trade's chief executive, in a press release. "The market's initial reaction validates its acceptance of the proposal."
Joe Ricketts, Ameritrade's founder and chairman, issued a statement Thursday saying, "The board believes there will likely be further consolidation in the industry but confirmed Ameritrade is not for sale."
Lauren Bender, a senior analyst with Celent Communications LLC in Boston, said "the pressure to consolidate within the industry remains strong." For Ameritrade to keep growing, she said, it will eventually "have to acquire, merge, or be acquired."
Matt Bienfang, a senior analyst at TowerGroup Inc., a Needham, Mass., unit of MasterCard International, said that E-Trade faces the same pressure. "The only thing left is to grow through acquisition."
Ms. Bender said that two companies that might get purchased are TD Waterhouse Group Inc., a unit of Toronto-Dominion Bank; Harrisdirect LLC, the online brokerage unit of Bank of Montreal.
Matthew E. Fischer, a senior analyst for IRG Research, agreed that Harrisdirect and TD might eventually be purchased, and also named Scottrade Inc. as another potential target.
A Scottrade spokeswoman said it had no plans to sell itself; a Toronto Dominon spokeswoman said the bank is committed to the online brokerage business, though last year the company was in talks to sell the business to E-Trade.
Harrisdirect did not responded to American Banker inquiries.
In its statement Thursday, E-Trade defined its bid. Ameritrade shareholders would own 47.5% of a merged company, and E-Trade would also offer $1.5 billion in cash. E-Trade said a combined company could attain synergies and future revenue opportunities worth more than $650 million. E-Trade shares dropped 2.75% Thursday; Ameritrade was flat.
While Ameritrade might become a buyer, Mr. Fischer said it won't sell itself to E-Trade. "I think they shut the door," he said. "Saying, 'We are not for sale' - I think they made it pretty clear."
He said that a hostile bid from E-Trade would be difficult to pursue because the Ricketts family controls more than 30% of its stock. And though Ameritrade's September 2002 merger with Datek Online Holdings Corp. require Mr. Ricketts to vote along with the board if it wants to sell, Mr. Fischer said that provision is unlikely to come into play. "If that were to have been a factor, it would have come out today."
Add in other board members and private equity investors who have also agreed to follow the board on M&A issues and 40% of Ameritrade's stock is effectively out of reach for E-Trade, Mr. Fisher said.
"I don't think Ameritrade would get sold without the board's consent," he said.
