The online brokerage E-Trade, continuing its transformation into a diversified financial services company, on Monday said it would sell its investment bank to Wit Capital Corp. and receive in return Wit's retail brokerage business.
The alliance puts E-Trade and Wit in a strong position to become a leading bank in Silicon Valley, though other online banks and full-service firms are paying close attention to the area, said Dan Burke, an analyst with Gomez Advisors in Lincoln, Mass.
New York-based Wit agreed to pay $328 million for E-Offering, whose, shareholders would get 32 million shares of Wit Capital. The unit would be folded into Wit SoundView, an online investment bank started this year that focuses on underwriting new and secondary stock issues for Internet and technology firms.
E-Trade, of Menlo Park, Calif., would acquire Wit's 100,000 retail brokerage accounts, which would give it 2.6 million accounts. E-Trade also agreed to buy two million shares of Wit Capital worth about $21 million.
The transactions would open an exclusive new market for Wit's initial public offerings, research, and other services and expand the range of investment opportunities available to E-Trade's customer base. They would also give E-Trade access to Wit's institutional and corporate accounts.
Ronald W. Readmond, Wit's president and co-chief executive officer, said in a press release that the deal would better position Wit SoundView "to compete successfully for lead manager roles in Internet and new technology offerings."
Steve King, interim president and chief executive officer of E-Offering, said the pairing would let Wit SoundView take advantage of his company's product and technology platform, including its pre-IPO presentations. Mr. King became interim president/CEO in January, when Walter Kruttenden stepped down. Walter Rudman, CEO of Wit Capital, is to be the permanent president and CEO upon completion of the E-Offering deal, slated for the third quarter.
Analysts say boutique investment banks such as Wit run the danger of being isolated from the IPO market because they lack distribution to retail investors. Companies considering issuing stock generally would rather go through a Merrill Lynch or another big brokerage that offers a broad range of distribution capabilities, said Rick Spear, director and head of capital-markets electronic commerce at Oliver Wyman & Co., a consulting firm in New York.
On Wit's closing of the E-Offering purchase, E-Trade and two E-Offering investors - General Atlantic Partners and Softbank Venture Capital - would collectively own 25% of Wit's shares.
E-Trade chairman and CEO Christos M. Cotsakos, and Bill Ford, a partner of Greenwich, Conn.-based General Atlantic, would join the board of Wit Capital.