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E*Trade buys Telebanc for $1.8 billion

E*Trade Group Inc. (Nasdaq: EGRP) agreed on Monday to buy Telebanc Financial Corp. (Nasdaq: TBFC) for $1.8 billion in stock, or $93.45 a share - a 40 percent premium from Friday's close.

The purchase broadens the online brokerage's business into loans and other financial services and increases the "stickiness" of E*Trade's financial portal.

E*Trade expects the transaction to be accretive to both revenue and earnings immediately on closing. The deal is expected to be completed in the fall, the companies said.

Telebanc is the parent of Telebank and Telebanc Capital Markets, which together offers financial products and services to the U.S. markets via the Internet, the phone and through automated teller machines, as well as facsimile and traditional mail. Telebank Capital is a registered investment advisor, funds manager and broker-dealer that concentrates on the acquisition of single-family home mortgages.

E*Trade has been making steady progress on being more than a tool for the online trader. The Palo Alto, Calif. company is moving towards selling mutual funds, as well as other financial services. E*Offering, its investment bank unit, offers access to initial public offerings. E*Trade hasn't ignored its roots, investing in the Archipelago electronic trading network with Goldman Sachs, which handles anonymous person-to-person trades.

The acquisition will be accounted for as a pooling of interests, which trims down on charges that can hurts earnings. Telebanc management will remain after the union, Bloomberg News reported, citing people familiar with the merger.

Diversity may be a prudent move, now that Wall Street heavy weights, such as Donaldson Lufkin and Jenrette and Merrill Lynch have entered the onling trading business.

Shares of E*Trade rose 2 1/2 to 44 1/2 and Telebanc gained 4 1/4 to 66 1/2 on Friday.

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