E-Trade Group Inc., which just weeks ago was itself the subject of takeover rumors, unveiled plans Monday to acquire one its competitors, Web Street Securities.
The deal, valued at $45 million, would net the Menlo Park, Calif., discount broker 34,000 active accounts, including 6,300 in Germany. E-Trade already has a presence in several European countries and in other overseas locations.
E-Trade would pay $25 million for the brokerage business and accounts. Analysts said the company would be paying between $500 and $735 for each account.
The remaining $20 million would go toward buying Web Street's four physical locations in San Francisco, Beverly Hills, Boston, and Denver. E-Trade, which has set a goal of opening 15 branches in the United States by yearend, said it plans to convert the offices into financial superstores similar to the company's flagship store in midtown Manhattan.
The deal is expected to close next month.
Several discount brokers are struggling to deal with a rapid decline in online stock trading, as the investing public who are nursing depleted stock portfolios have looked away from do-it-yourself investing in favor of a more advice-driven approach.
Along with E-Trade, which never commented on rumors that it was being courted by several major financial services companies, Ameritrade Holding Corp. of Omaha has also been a subject of speculation in recent weeks.
"Today more than ever, scale is important in online brokerage," said Glenn Schorr, an equity analyst with Deutsche Bank in New York. "You have to get bigger or be gone. This is the one of the first real consolidations."
And Mr. Schorr predicts that of the 150 to 200 brokers around today, just half will still exist in a year's time. "Many of the mass-market brokers will be left to wither and die on the vine."
But consolidation can work out for some companies. Richard Repetto, an equity analyst with Putnam Lovell Securities in New York, said E-Trade would pay a pretty reasonable price for Web Street, considering what it stands to gain from the deal.
The average Web Street investors trades approximately 10.1 times a quarter, while E-Trade customers trade about 2.7 times a quarter on average, Mr. Repetto said. And Web Street's average account size $13,794, versus $12,378 for the average E-Trade account, according to Putnam Lovell's research.
E-Trade has said it hopes to retain 70% of Web Street's customers.