Merrill Lynch & Co. said Friday that it will use a technology arm of D.E. Shaw & Co. to build up its Internet presence.
Merrill's acquisition of D.E. Shaw Financial Technology LP, part of a technologically savvy New York investment company that was hurt by recent downturns on international markets, provides a belated boost into the hot Internet trading market.
About one out of every seven equity trades are conducted over the Internet, according to data compiled by Credit Suisse First Boston analyst Bill Burnham, and the on-line market share leaders are Charles Schwab & Co., Toronto-Dominion Bank's Waterhouse Securities affiliate, and E-Trade Group.
"Merrill Lynch wants to go into this market and fight for what it considers to be its customers," said electronic commerce analyst Scott Smith of Current Analysis in Sterling, Va. Merrill is realizing that on- line brokerage is more than "just a fad," he added.
D.E. Shaw Financial Technology, which is based in Cambridge, Mass., and calls itself DESoft, would bring advanced on-line trading software to the largest retail brokerage firm. The deal, which the companies hope to conclude this quarter pending regulatory approval, is not expected to change Merrill's Internet pricing or full-service product strategy.
"We have no intention of being in the deep discount on-line trading business," said Maddy Weinstein, senior vice president in Merrill Lynch's private banking group.
Merrill will target "people who are interested in managing a portion of their money on their own." Its Merrill Lynch Online service claims 400,000 customers with $320 billion of household assets.
The firm's 15,000 brokers will continue providing full brokerage services, coupled with the convenience of the Internet, Ms. Weinstein said.
Mr. Smith said Merrill Lynch has embarked on "a transitional strategy, a way to keep people assured that they are getting the 'old world' touch" complemented by the Internet."
Terms of the sale were not disclosed. David E. Shaw, chairman of D.E. Shaw & Co. and mastermind of its high-technology strategies, expressed confidence in a prepared statement that "the DESoft development team and state-of-the-art technology will dramatically enhance Merrill's on-line resources."
D.E. Shaw is being dismantled in the wake of hedge fund losses. They made banking industry headlines because of losses recorded by BankAmerica Corp., with which Shaw had forged a strategic relationship.
Not included in the Merrill deal is FarSight Financial Services, an on- line brokerage owned by D.E. Shaw, also based in Cambridge, Mass., and on the selling block. FarSight's leading-edge software has been licensed to several mutual fund companies, including Lindner Funds of St. Louis.
"We have been in serious discussions with a number of potential suitors," said D.E. Shaw spokesman Nick Giankouros, referring to FarSight.