E*Trade left out as brokers merge

ONLINE broker Ameritrade has agreed to buy rival TD Waterhouse USA from Toronto-Dominion Bank for $2.9bn (£1.6bn) in stock, with the Canadian lender retaining a 32% stake.

The new combined company, to be called TD Ameritrade, is valued at $9bn.

Ameritrade will also sell its Canadian brokerage operations to TD Bank for $60m in cash. They will be rebranded under the Waterhouse banner.

Analysts have long argued that consolidation in the troubled online brokerage sector is inevitable, and with the Ameritrade deal, focus shifts to rival E*Trade Financial, which could be left without a large takeover target in the brokerage sector if the deal is completed.

E*Trade tried to scupper talks between Ameritrade and TD Waterhouse after its initial bid and a sweetened offer for Ameritrade were both rebuffed.

The online discount brokerages have been having a difficult time since the dot-com bubble burst and are seeking economies of scale to lower their costs.

Ameritrade expects the deal with the Canadians to be completed in about six months and to be earnings positive within a year. Ameritrade chief executive Joe Moglia will lead the new company.