TD Ameritrade Holding Corp.'s directors plan to discuss at a meeting Tuesday the possibility of trying to acquire rival online-brokerage firm E*Trade Financial Corp., according to people familiar with the situation.
The board meeting was already scheduled when hedge-fund firm Citadel LLC, E*Trade's biggest shareholder, prodded the company last week to explore selling itself.
The expected talks don't necessarily mean that TD Ameritrade will make an offer for E*Trade. The New York company had a stock-market value of $4.4 billion on Friday.
Still, some analysts consider Ameritrade a likely buyer, citing the allure of E*Trade's brokerage clients and the potential overlap of the firm's banking assets with Toronto-Dominion Bank. The Canadian bank owns a minority stake in Ameritrade. An Ameritrade spokeswoman said Sunday that the company will "often look at opportunities in the marketplace in terms of the financial or strategic value they could add to our firm and will continue to do so." She declined to comment on Tuesday's meeting. An E*Trade spokeswoman declined to comment.
E*Trade said Friday that it hired Morgan Stanley investment bankers to ponder its future. The company also formed a special committee of independent directors in response to Citadel's push for a possible sale. Directors at E*Trade are open to selling the company if the price is right, according to people familiar with the matter. Morgan Stanley will report its findings to a board committee responsible for finance and risk oversight. That committee includes Citadel Chief Executive Kenneth Griffin, who has been on E*Trade's board for two years.
Ameritrade CEO Fred Tomczyk previously has said the Omaha, Neb., company would consider buying E*Trade under the right terms and structure, and directors have weighed the possibility of making a move on E*Trade more than once during the past year, according to a person familiar with the situation.
Analysts also consider Charles Schwab Corp. a potential suitor, though the company's chief executive on Friday cited several hurdles to an E*Trade deal. Those include the purchase price and "capital holes that need to be filled under purchase accounting rules," said Walt Bettinger, the San Francisco company's CEO. A Schwab spokesman declined to comment Sunday.
Expansion-hungry regional banks in the U.S. or Canada also might be interested in E*Trade, especially because of its low-cost deposits. But they could be discouraged by having to take on the company's troubled holdings of mortgage securities.
Last year, E*Trade hired J.P. Morgan Chase & Co. to consider a strategic review. The board decided a sale wasn't in the best interest of shareholders at the time, concluding that it would be better to wait until E*Trade's balance sheet was stronger, people familiar with the matter said. Since then, the company has pared down the size of its mortgage portfolio.
Since late 2007, Citadel has been the biggest E*Trade shareholder, now owning 9.8% of the company's common stock. Omega Advisors Inc.-which has about a 2.4% stake, according to a recent filing-has expressed hope that E*Trade might be sold. Some other hedge funds that own shares in E*Trade also support a sale, people familiar with the situation said. A Citadel spokeswoman declined to comment Sunday.
This week's discussion by the Ameritrade board is likely to include a closer look at how E*Trade could be combined with Ameritrade, as well as the implications of inheriting E*Trade's loan problems.
