The stock jumped on news that two of the most popular brokerage firms were joining forces. Charles Schwab reached an agreement to acquire TD Ameritrade (NASDAQ:AMTD) in an all-stock deal worth $26 billion. Under the terms of the deal, TD Ameritrade shareholders will receive 1.0837 shares of Schwab for each share of TD Ameritrade. The deal is expected to close in the second half of 2020.
The deal should bring enormous value to shareholders. With a combined $5 trillion in client assets, the two firms will be able to offer a wider array of services and features and an enhanced trading experience for their combined 24 million account holders. Additionally, Schwab sees the deal helping to lower operating expenses as a percentage of client assets.
Recently, Schwab and TD Ameritrade announced the move to zero-commission trading to respond to heightened competition from upstarts like Robinhood that offer free trading and pose an increasing threat to the dominance of traditional full-service firms. The move to free trading, along with the diversification of services and the massive scale both companies will have after the deal closes, should put the combined company in a powerful competitive position moving forward.
Schwab CEO Walt Bettinger said it best: "With this transaction, we will capitalize on the unique opportunity to build a firm with the soul of a challenger and the resources of a large financial services institution that will be uniquely positioned to serve the investment, trading and wealth management needs of investors across every phase of their financial journeys."
The integration of the two companies is expected to take 18 to 36 months. The deal should create enormous value for shareholders over the long term, but smooth integration is crucial.
Schwab has guided for the deal to be 10% to 15% accretive to earnings per share according to generally accepted accounting principles (GAAP) in year three after the close of the deal. Analysts currently expect Schwab to achieve EPS of $2.68 in 2019, up from $2.45 in 2018.