Reports of a major deal in the online brokerage space have the industry buzzing.
The buyout of behemoth Ameritrade by one of its key rivals, E-Trade Financial, would combine two of the largest retail online brokerages during an uncertain time for the industry, as volumes slide sideways and growth is hard to find.
Discussion online over the potential buyout of Ameritrade Inc. of Omaha, Neb., by E-Trade Financial Corp. of New York was fueled by reports in the Wall Street Journal and the New York Times, among others, as well as a raft of Weblogs.
However, officials at E-Trade and Ameritrade issued nearly identical statements, saying that they will not comment on “market rumors.” Pam Erickson, E-Trades communications director, added, “These stories are a futile burst of energy.”
While Ameritrade, with 3.7 million customers, has operated as a “pure play” online discount brokerage, E-Trade, with 3 million customers, is involved in a variety of financial products, including banking, mortgages and other personal loans.
Both firms have a great deal of experience on the acquisition side of mergers and buyouts. Ameritrade bought tech-savvy Datek in 2002, and during 2004 swallowed up Bidwell & Co., Brokerage America, JB Oxford & Co. and Investex.
E-Trade was reportedly on the verge of buying TD Waterhouse, but the deal broke down over matters of control of the merged entity. More recently, Ameritrade was said to be near completion of a deal that would result in a takeover of TD Waterhouse.
A potential takeover would likely give E-Trade quite a few new customers as its customer bases appear to have little overlap, analysts said.
An analysis in the visitor bases of E-Trade and Ameritrade revealed that only 3 percent of the total 2.36 million visitors visited both sites in March 2005, according to Graham Mudd of comScore Media Metrix. The comScore figures include connections by home, work and university users in the United States.
Ameritrade attracted 1.4 million visits in March 2005, while E-Trade received 1.05 million visits.
Mudd further asserted that little overlap exists between Ameritrade and TD Waterhouse. Just 3 percent of the combined 2.08 million visitors to Ameritrade and TD Waterhouse visited both sites in March.
Ameritrade seriously overhauled its Web site during 2004, finally integrating the technology brought in with the Datek acquisition. The new site provides improved navigation, more tools and services, easier to find information, customization and better trading technology.
Meanwhile, competitors mull over the changes to the market from if the combined company—if the deal is concluded—and whether the deal might provide an opening to woo some customers.
Andrew Fishman, president of The Schonfeld Group LLC, which focuses on the active trader market, said, “Obviously both companies have good products. A larger firm can get economies of scale across the products it offers its customers.”
Fishman said E-Trade will have to focus on the online trading component to complete a merger successfully. Fishman added, “I dont see this merger affecting my business. If E-Trade drops the ball, there will be an opportunity for Schonfeld to pick up some of their active traders, though.”
Kelly Doria, marketing manager at rival Scottrade Financial Services of St. Louis, Mo., noted: “Were watching the situation and keeping an eye on it, but being privately held, Scottrade is in a different league. Well keep doing what weve been doing, which is focusing on our customers.” Scottrade is rolling out its revamped Web site on May 19.
Would a merger between E-Trade and Ameritrade be good or bad for their users? Fishman observed, “I think if E-Trade keeps its focus and executes properly, its not a bad thing.”
Still, he noted that competition is usually good for users, and this transaction would take at least one more player off the scene.