US online broker TD Ameritrade to buy rival Scottrade Financial for $2.7 bn

US online broker TD Ameritrade on Monday struck a deal to buy its smaller rival Scottrade Financial Services for $2.7 billion in cash and stock in order to strengthen its leadership in trading.

Under the terms of the deal that have been approved by the board of both companies, the transaction will take place in two, concurrent steps.

TD Ameritrade will buy Scottrade Bank from Scottrade Financial Services, Inc. for $1.3 billion in cash. Scottrade Bank will merge with and into TD Bank, NA, an indirect wholly-owned subsidiary of The Toronto-Dominion Bank. TD Bank will then buy $400 million in new shares from TD Ameritrade.

Following that acquisition, TD Ameritrade will acquire Scottrade Financial Services, Inc, for $4 billion, or $2.7 billion net of the proceeds from the sale of Scottrade Bank.

The $2.7 billion will  comprise $1 billion in new shares issued to Scottrade shareholders and $1.7 billion in cash, which includes TD Ameritrade cash ($900 million), a new debt offering ($400 million), and the proceeds from the sale of 11 million shares to TD ($400 million).

Post closing, the combined company will have 600,000 client trades per day, $944 billion in total client assets, 10 million funded client accounts, $14 billion in margin balances, and $149 billion in cash balances.

Scottrade is a privately-held financial services firm with four key lines of business, Scottrade, Inc., a leading brokerage company; Scottrade Advisor Services, a division of Scottrade, Inc., which serves registered investment advisors; Scottrade Bank, a provider of online retail banking products and services, commercial lending and commercial equipment financing; and Scottrade Investment Management, providing investment guidance services.

The St Louis-based online broker has $170 billion in client assets, and a network of 500 retail branches.

Omaha, Nebraska-based TD Ameritrade is one of the biggest discount brokerages in the US.

It has $774 billion in assets and has about 100 branches.