Ameritrade merges, then unloads
Just as it winds up an acquisition with rival brokerage Datek, the company begins unraveling another with a company it bought last year.
The online brokerage on Monday announced the completion of its merger with rival Datek. Ameritrade will also sell off its TradeCast unit, acquired last year, and plans take a related $65 million noncash charge, the company said.
"In our evaluation of the Datek assets, we recognized redundancies with TradeCast and decided to leverage Datek's technology in a way that also allows us to be more productive," said Joe Moglia, Ameritrade's chief executive officer, in a statement.
Ameritrade has been on a buying spree over the last year. In addition to TradeCast--which provided technology that allows traders to make direct stock trades---the company bought National Discount Brokers. It announced its merger agreement with Datek in April of this year.
Ameritrade's strategic decisions come as many investors have lost their enthusiasm for online stock trading amid a depressed market. While the brokerage's response to the market decline has been to gobble up competitors, rival E*Trade Financial has gone a different direction. The online brokerage has been expanding into banking, mortgages and insurance to complement its brokerage core.
Ameritrade purchased TradeCast for $40 million in stock. The company used TradeCast to launch Ameritrade Pro for professional and active stock traders last fall. Ameritrade Pro will not be affected by the TradeCast selloff, the company said.
Ameritrade does not yet have a buyer for TradeCast and has no timetable for selling off the company, spokeswoman Natalie Carlson said. For the time being, the company will continue to operate as a unit of Ameritrade.
The company warned Wall Street that it would streamline operations and potentially cut staff following the Datek acquisition. Carlson said she was unaware of the timeline for the layoffs, however.
Datek's call center and clearing operations will be eliminated in favor of Ameritrade's operations, but Carlson said those cuts have not yet been completed. She was unaware of how many people would be affected in those plans.
The expected $65 million loss comes from the write off of goodwill in the sale of TradeCast. Including the write off, the company expects to report a fourth-quarter loss of 19 cents per share.
Cashless trades up in the air
Based on average number of trades per day, Ameritrade and Datek claimed their union would create the largest online trading company. The agreement, however, was cast in some doubt last month when the National Association of Securities Dealers (NASD) warned the companies about so-called cashless trades.
Both companies allow customers to purchase stocks with the proceeds from other securities sold on the same day. NASD charged that the practice violates regulations that prohibit the sale of a stock before it's been fully paid for.
Ameritrade at the time warned investors that NASD could use the concerns to delay or deny approval of the pending Datek merger.
Although the companies have not yet resolved the issue, NASD approved the merger last week. Both Ameritrade and Datek shareholders have also approved the merger.
Separately, Ameritrade said it would buy back up to 40 million company shares over a two-year period.