Waterhouse Jilted

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There's a saying among dealmakers: "The best deals I've done are those I didn't do." That appears to be the logic behind the odd dance between discount brokers E*Trade (NYSE: ET) and TD Waterhouse, which is part of Toronto-Dominion Bank (NYSE: TD).

On paper, the deal looks like a slam dunk. The combination would create the second-largest discount broker, trailing only Charles Schwab (NYSE: SCH). It would also offer significant costs savings and perhaps better pricing power. Moreover, E*Trade would get its hands on a system of 150 U.S. retail branches.

But on Sunday, the companies decided to kill the deal. By all indications, the critical issue was that TD wanted significant control over the new entity.

Either way, E*Trade's decision shows a good deal of discipline. The "shoot first, ask questions later" dot-com mentality is a thing of the past.

For TD Waterhouse, unfortunately, this is a classic case of being left at the altar. Having been jilted makes it much more difficult to attract other suitors. If nothing else, suitors such as Charles Schwab and Ameritrade (Nasdaq: AMTD) will want control.

TD Waterhouse may already be considered a "shopped" deal. The brokerage has essentially been in play since October, when Goldman Sachs (NYSE: GS) was hired, and yet nothing has happened. These things have a way of perpetuating themselves.

Which may not be an altogether bad thing. The online brokerage market is picking up steam. TD may just decide to keep Waterhouse.

Tom Taulli is the author of six books on investing, including The Complete M&A Handbook (Random House). You can reach him attom@taulli.com.