Wit Capital Group (Nasdaq: WITC) and E*Trade (Nasdaq: EGRP) announced Monday that they are exchanging properties. Wit bought E*Trade's E*Offering unit, and E*Trade acquired Wit's brokerage business.
Officials said the deal allows both companies to focus on their core businesses. Wit Capital boosts its Internet investment banking business, and E*Trade gets research content and additional accounts.
Under the deal, Wit becomes the exclusive provider of new share issues on E*Trade, which will buy 2 million Wit shares, worth $20.5 million. E*Trade's 2.6 million customers will use Wit to purchase shares of IPOs and follow-on stock offerings.
E*Trade CEO Christos Cotsakos called the deal a "home run for both companies" and said E*Trade will also get access to VostockSM, the online auction system announced last week by Wit SoundView and ITG Inc. (NYSE: ITG).
Wit Capital will buy E*Trade's E*Offering for 32 million shares. Based on Wit's closing stock price of 10 1/4 the transaction is worth $328 million. The companies expect the deal to close in the third quarter.
E*Offering shareholders will receive about 32 million shares of Wit Capital Group, representing 25 percent of Wit Capital's fully diluted shares.
The deal will also "have an attractive impact for Wit shareholders, and be accretive to 2001 revenue and cash earnings per share," said Wit Soundview Co-CEO Ron Readmond on a conference call Monday.
E*Offering was expected to have sales of $75 million and a $10 million loss for fiscal 2000, ending Sept. 30. E*Offering was expected to exit fiscal 2000 with a profitable quarter.
The deal will make E*Trade, General Atlantic and Softbank, which owns a stake in ZDNet, owners of more than 25 million shares of Wit Capital Group. About 20 million shares of the Wit will be under a three-year restriction on sale. Cotsakos and Bill Ford of General Atlantic Partners will join Wit Capital Group's board of directors.
Stiff competition led to the deal. Both firms compete with other banking firms to offer online investors IPOs. In November, TD Waterhouse Group, Inc. (NYSE: TWE) Ameritrade Holding Corp. (Nasdaq: AMTD) and Charles Schwab & Co., (NYSE: SCH) said they were partnering with three venture capital firms to form an online investment bank.
Wit Capital Group bought SoundView Technology Group in November to put it in a better position for IPO underwriting. Wit also competes with Donaldson, Lufkin & Jenrette's DLJ Direct (NYSE: DIR) unit, which assisted with ZDNet's initial public offering last year.