Tech Industry

E*Trade, Wit cut $325 million brokerage deal

The stock swap will give online brokerage E*Trade ownership of Wit's retail brokerage business, Wit SoundView.

Online investment bank Wit Capital Group said today that it will acquire rival E*Offering for $328 million in stock.

The stock swap will give online brokerage E*Trade--E*Offering's largest shareholder, with a 28 percent stake--Wit Capital's retail brokerage business, Wit SoundView.

Wit Capital, based in New York, will pay for E*Offering with 32 million shares, or about 25 percent of the company's stock. E*Trade, based in Menlo Park, Calif., will buy an additional 2 million shares. The transaction will likely be based on Wit Capital's closing price Friday of $10.25.

Online brokers including Charles Schwab and E*Trade are putting pressure on retail banks--online and offline--by offering services from mortgage lending and bill payment to ATM access. Net brokerages also have been eyeing the lucrative investment banking business. E*Offering was E*Trade's first step into the sector.

Analysts say the goal of an online broker is to offer as many financial services as possible to keep revenue streams flowing through the management of assets and service fees even if trading volume declines.

Today's acquisition combines Wit SoundView's research with E*Offering's


Jeff Hirschkorn
IPO.com Senior market analyst
 
Discussing the outcomes of the sale of E*Offering to Wit Capital.
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E*Trade will use Wit SoundView as its exclusive source for initial public offerings, secondary offerings and other investment banking services. The deal brings E*Trade about 100,000 retail brokerage accounts.

"Wit SoundView's offerings will be able to draw a larger pool of investors from E*Trade," said Russell Keane, an analyst at investment bank Keefe, Bruyette & Woods.

Christos Cotsakos, E*Trade's chief executive, will join Wit Capital's board of directors. General Atlantic Partners' Bill Ford will also join the board. The transaction is expected to close in the third quarter of 2000.

Analysts said today's deal benefits E*Trade in two ways. The sale of E*Offering gives the online brokerage some cash, as well as access to Wit's brokerage accounts and IPO and secondary offerings.

"It looks like E*Trade is cashing out on E*Offering and at the same time


Gartner analyst David Furlonger says the most notable result of the deal between Wit Capital and E*Trade is that Wit Capital will divest itself of the retail brokerage business operated by its subsidiary, Wit SoundView.

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getting 100,000 lucrative retail brokerage accounts," said Rob Sterling, an analyst at New York-based research firm Jupiter Communications.

According to some analysts, there have been rumblings at E*Offering for a while.

"There's an interim CEO there; Cotsakos was spending time there; and supposedly E*Trade has injected more money into E*Offering," Keane said. "Apparently for whatever reason, E*Offering wasn't working out to the extent they wanted it to." Shares of Wit Capital surged 88 cents, or 9 percent, to $11.13 midday. The stock has traded as high as $38 and as low as $9 in the past 52 weeks.

Shares of E*Trade slipped 25 cents, or 1 percent, to $19.56. The stock has traded as high as $60.43 and as low as $16.06 during the past 52 weeks.