Online broker TD Ameritrade acquires rival thinkorswim for $606 million

TD Ameritrade, the No 3 US online brokerage by assets, said it would acquire thinkorswim Group Inc in a cash and stock deal valued at about $606 million. The deal includes $225 million in cash and the issuance of about 28 million shares of TD Ameritrade common stock, Omaha, Nebraska-based TD Ameritrade said today in a statement.

Shareholders of New York-based thinkorswim will receive 0.3980 of a TD Ameritrade share plus $3.34 in cash for each of their shares. The transaction values thinkorswim at about $8.71 per share, a 54.1 per cent premium over Wednesday's closing price of $5.65.

TD Ameritrade said it is the industry leader in the number of equity trades placed each day, while thinkorswim leads in the daily number of retail option trades. Thinkorswim earned $87 million in pre-tax income on $380 million in revenue for the 12 months ended 30 September, TD Ameritrade said in a statement. The company has about 87,000 funded retail brokerage accounts and $3 billion in client assets.

"This deal advances TD Ameritrade's growth strategy for its active trader client segment by introducing new trading functionality for traders, including advanced options trading, futures, foreign exchange trading and portfolio margining," said the company.

TD Ameritrade expects the transaction to close within six months, and boost fiscal 2010 earnings by 3 per cent to 7 per cent. The company also plans to initiate a roughly 28 million-share stock buyback program. TD Ameritrade also plans to retain some of thinkorswim management, including founders Tom Sosnoff and Scott Sheridan, and said Chief Executive Lee Barba will have "an active role" in the transition.

Merrill Lynch & Co is advising TD Ameritrade on the transaction. Paragon Capital Partners LLC is advising thinkorswim. Shares of TD Ameritrade closed at $13.48 Wednesday, while thinkorswim stock closed at $5.65 yesterday.