(Reuters) - TD Ameritrade (AMTD.O) has agreed to buy Scottrade for $2.7 billion in a deal that would bring together two of the biggest U.S. discount brokerages, but is expected to face scrutiny from regulators.

It is the latest in a wave of consolidation in an industry which has been grappling with intense competition and weak trading volumes as a result of small investors being drawn towards cheaper investment products that track major indexes.

E*Trade Financial Corp (ETFC.O), another discount broker, said in July that it would buy online brokerage OptionsHouse for $725 million, while Ally Financial Inc (ALLY.N) purchased TradeKing Group for about $275 million a month earlier.

In a connected deal, Toronto-Dominion Bank (TD.TO), TD Ameritrade’s biggest shareholder, said on Monday it had agreed to buy Scottrade’s banking business for $1.3 billion as it continues to ramp up its expansion in the United States.

TD Ameritrade’s acquisition of Scottrade combines two of the United States’ “big five brokerages”, the others being Charles Schwab, Fidelity Investments and E-Trade, and would leave only four major brokers operating in the marketplace.

“I think that the authorities in the United States are unlikely to let this pass without a pretty close look,” said John Briggs, an antitrust attorney with the law firm Axinn, Veltrop & Harkrider. “I think the transaction deserves scrutiny and will get scrutiny.”

TD Ameritrade’s CEO Tim Hockey said he believed regulators would look at the deal “fairly.”

The sign for a Scottrade branch is seen in New York, U.S., October 24, 2016. REUTERS/Shannon Stapleton

“I still think this is a considerably competitive marketplace, that’s for sure. There are lots of opportunities for additional competitors to get into our space and continue to drive price competition,” he said.

The deal will produce a combined business with around 10 million client accounts and $1 trillion in assets, which will execute around 600,000 trades per day.

The purchase prices comprises $1.7 billion in cash and $1 billion in new shares. It will net a windfall for Scottrade’s co-founder and Chief Executive Rodger Riney, who set the company up in 1980. Riney, who said last year he was being treated for cancer, will join the TD Ameritrade board and also become TD Ameritrade’s fourth biggest shareholder.

“The environment has become more challenging than ever and we’ve faced some of our own internal pressures. As the years have gone by, it has become apparent that scale is more important than ever,” Riney said on Monday.

In addition to investors switching from buying individual stocks to holding cheaper index-tracking funds, discount brokerages have also been facing price competition from full-service brokerages and automated investment advisers, known as robo advisers. However, new regulations on giving retirement advice in the United States are expected to benefit discount brokerages because investors may switch to them from the full-service brokerages to avoid fees.

Hockey said TD Ameritrade will look at further deals which “make strategic and financial sense” in addition to Scottrade.

TD Ameritrade, 42-percent owned by Toronto Dominion Bank, said it expected annual cost savings of $450 million as a result of the deal, with another $300 million of potential savings identified in the longer term.

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As part of those plans, Hockey said around 25 percent of the combined business’s 600 branches will be closed. TD Ameritrade currently has 100 branches while Scottrade has 500. Hockey said in the interview the combined workforce of 10,000 will be reduced by about 20 percent.

TD Bank has been expanding aggressively in the United States, growing both its retail and investment banking divisions as it looks to diversify from its home market. It has already grown to be one of the 10 biggest banks in the United States and has a major retail presence with 1,300 branches.

Shares in TD were up 0.3 percent with TD Ameritrade down 3.3 percent in mid-day trade.</s>ST. LOUIS -- Discount brokerage Scottrade is being acquired by rival TD Ameritrade for $4 billion.

The companies announced the deal early Monday, after several weeks of news reports about the merger. The sale is subject to regulatory approvals and is scheduled to close by Sept. 30, 2017. Scottrade will convert to TD Ameritrade systems in 2018.

Combined, the two companies have $944 billion in total client assets and 10 million funded client accounts.

"It gives us a lot of power to combine the two," Scottrade's founder and Chief Executive Officer Rodger Riney told the St. Louis Post-Dispatch on Monday. Riney will join TD Ameritrade's board of directors when the sale is final. "It is a business that has become ever more competitive as the years have gone by ... and scale is more important than ever. The more clients you have, the less expensively you can offer services to clients."

Scottrade has 3,700 employees companywide, including about 1,800 in the St. Louis region, where it is based.

Omaha, Neb.-based TD Ameritrade said it expects to realize $450 million in combined annual expense synergies and more than $300 million in additional long-term opportunities. Savings will come in part from headcount reductions as the combined company shutters about 150 branches.

Scottrade has 1,000 investment consultants and 500 branches, but has not yet identified which locations may close.

The acquisition -- the largest in TD Ameritrade's history -- more than quadruples the size of its branch network, which currently totals about 100. Even as customers gravitate to online services, there's still demand for in-person conversations with knowledgeable employees, TD Ameritrade's president and CEO Tim Hockey said Monday.

"Even though everyone is enamored about talking about technology, managing trading and wealth are very important conversations and [customers] want to talk to someone they know and trust in their community," Hockey said.

"Scottrade clients will get the benefit of deeper education solutions and more products," Hockey said. "This gives us a lot more scale which will allow us to invest in more innovations."

The deal will occur in two steps: TD Bank Group is buying Scottrade's banking arm, Scottrade Bank, for $1.3 billion, and the bank will merge will merge into TD Bank NA, a subsidiary of Toronto-based Toronto-Dominion Bank, TD's largest investor. After that transaction, TD Ameritrade will acquire Scottrade Financial Services for $2.7 billion.

TD Ameritrade was founded in 1975 as First Omaha Securities, the first company to offer discount stock trades. It has 7 million accounts and $774 billion in client assets.

Scottrade, which has $170 billion in client assets and more than 3 million accounts, was founded by Riney as Scottsdale Securities in Scottsdale, Ariz., in 1980. A year later, Riney opened the company's second branch in the St. Louis area.

Riney relocated the headquarters to St. Louis County in 1985. When it started its website in 1996, the company was among the first to offer online trading. The company chose Scottrade.com as its home page because Scottsdale.com was already taken.

The company, renamed Scottrade in 2000, had $1.11 billion in annual revenue in 2015. Its four business lines are brokerage, investment adviser services, banking and investment management.

Riney, 70, announced last fall that he had multiple myeloma, a form of blood cancer. His health issues are well under control, Riney said, but played a factor in the company's decision to sell after decades of operating as an independent, privately held firm.

Riney said he decided not to take the company public and turned down multiple offers by potential suitors over the years because the company was happy being independent.

"It seemed like the right time," Riney said of Monday's sale announcement, noting that the two companies were founded within a few years of each other and share similar operating philosophies. "After a thorough process, we realized that TD Ameritrade would be the best partner for our associates and clients," he added.

"We break our backs to give great customer service and TD Ameritrade does the same," Riney continued. "Between the two of us, we have about 80 years of brokerage experience."

After the finalization of the merger, the Scottrade name will be phased out, including at the Scottrade Center arena downtown, home of the National Hockey League's St. Louis Blues. The arena's name will be changed to TD Ameritrade Center, Hockey said. The contract for the naming rights runs through 2021. "We'll be talking to the owners of Scottrade Center," he said.

TD Ameritrade's acquisition comes amid consolidation in the industry. Already this year, discount brokerage E-Trade Financial Corp. announced plans to acquire OptionsHouse for $725 million and Ally Financial finalized its acquisition of digital wealth management company TradeKing Group for $275 million.</s>TD Ameritrade Holding Corp said on Monday it would buy privately held Scottrade Financial Services Inc in a cash-and-stock deal valued at $4-billion.

TD Ameritrade, the biggest discount brokerage by trade executions, said it expected to realize about $450-million in combined annual expense synergies, and more than $300-million in additional longer-term opportunities once the deal closes.</s>NEW YORK (AP) — Online brokerage TD Ameritrade is buying Scottrade in a $4 billion cash-and-stock deal that would tie up two major players in the day trading industry during an era when an increasingly large number of investors are choosing index funds over stock picking.

In the two-stage deal announced Monday, TD Bank Group will buy Scottrade Bank from Scottrade Financial Services Inc. for $1.3 billion in cash. Scottrade Bank will be folded into TD Bank and it will buy 11 million shares from TD Ameritrade for $400 million. Then, TD Ameritrade will buy Scottrade Financial Services for $4 billion.

TD Ameritrade said that the transaction adds significant scale to its retail business and more than quadruples the size of its branch network. It anticipates about $450 million in combined annual expense savings.

Combined, TD Ameritrade and Scottrade had $944 billion in total client assets and 600,000 average client trades per day for the year ended Sept. 30, on a pro forma basis.

The deal is targeted to close by Sept. 30, 2017.

Shares of TD Ameritrade Holding Corp. slipped 3 cents to $37.05 before the market open Monday.</s>OMAHA, Neb. — Online brokerage TD Ameritrade is buying Scottrade in a $4 billion cash-and-stock deal that would significantly expand its branch network at a time when many financial firms are expanding automated adviser programs.

In the two-stage deal announced Monday, TD Bank Group will buy Scottrade Bank first from Scottrade Financial Services Inc. for $1.3 billion in cash, and Scottrade Bank will be folded into TD Bank

Then, TD Ameritrade will buy Scottrade Financial Services for $2.7 billion in cash and stock. Part of that purchase will be financed by selling 11 million shares to TD Bank, which will continue to control 41 percent of TD Ameritrade's stock.

TD Ameritrade said that the transaction adds significant scale to its retail business and more than quadruples the size of its network of about 100 branch offices. TD Ameritrade CEO Tim Hockey said the branches should help it better serve clients.

"Financial decisions are very important to people and they like talking with someone they know and they can talk to in their community," Hockey said.

Combined, TD Ameritrade and Scottrade had $944 billion in total client assets and 600,000 average client trades per day for the year ended Sept. 30, on a pro forma basis.

The deal is targeted to close by Sept. 30, 2017.</s>Brokerage TD Ameritrade has reached an agreement to buy Scottrade in a cash and stock deal worth $4bn that will hugely expand its branch network.

The transaction combines two highly complementary organizations with long histories of helping millions of people invest in their financial futures. For TD Ameritrade, the transaction adds significant scale to its retail business, extends its leadership in trading, and more than quadruples the size of its branch network.

TD says the tie-up, which has been approved by the relevant boards, will enable the two companies to cut $450m in annual costs. The deal will give Scottrade founder and CEO Rodger Riney a seat on the TD Ameritrade board.

Privately-held Scottrade boasts 3m client accounts and $170bn in assets under management.</s>The move, announced Monday by both companies, will allow TD Ameritrade (AMTD) to quadruple the size of its branch network. As part of the deal, TD Bank (TD), which already owns 42% of TD Ameritrade, will increase its stake in the combined discount broker.

TD Ameritrade was formed in 2006 when Ameritrade purchased TD Waterhouse USA from TD Bank. TD Bank ended up with its current stake in the company as a result of that deal.

Related: How TD Ameritrade winners turned $500,000 into $1.3 million in a month

Scottrade, founded in 1980 by CEO Rodger Riney, is privately held. Riney, the face of the company, will join the board of TD Ameritrade, but will apparently not have an executive role in the combined company.</s>OMAHA, Neb. — Online brokerage TD Ameritrade is buying Scottrade in a $4 billion cash-and-stock deal that would significantly expand its branch network at a time when many financial firms are expanding automated adviser programs.

In the two-stage deal announced Monday, TD Bank Group will buy Scottrade Bank first from Scottrade Financial Services Inc. for $1.3 billion in cash, and Scottrade Bank will be folded into TD Bank.

Then, TD Ameritrade will buy Scottrade Financial Services for $2.7 billion in cash and stock. Part of that purchase will be financed by selling 11 million shares to TD Bank, which will continue to control 41 percent of TD Ameritrade’s stock.

TD Ameritrade said that the transaction adds significant scale to its retail business and more than quadruples the size of its network of about 100 branch offices.

TD Ameritrade CEO Tim Hockey said the branches should help it better serve clients and expand into more markets although the company will probably close about 150 of the 600 branches it will have after the deal.

“Financial decisions are very important to people and they like talking with someone they know and they can talk to in their community,” Hockey said.

Combined, TD Ameritrade and Scottrade had $944 billion in total client assets and 600,000 average client trades per day for the year ended Sept. 30, on a pro forma basis.

“It gives us extraordinary scale,” Hockey said. “With that scale, those investments in technology will be spread over more clients.”

CFRA Research analyst Cathy Seifert cut her rating on TD Ameritrade’s stock to “Hold” from “Buy” but she said the deal should provide a boost.

“We view positively AMTD’s planned purchase, for $4B, of Scottrade Holdings, since it should help AMTD’s slowing revenue growth,” Seifert said.

Jefferies analyst Daniel Fannon said Scottrade is a good strategic fit with TD Ameritrade, and the deal makes sense given the potential cost savings.

The deal is targeted to close by Sept. 30, 2017.

In addition to the Scottrade deal, TD Ameritrade said its fourth-quarter profit declined 13 percent to $185 million, or 35 cents per share, as trading slowed.

The company generates revenue from a combination of transaction fees, asset-based fees and investor education fees. Officials believe adding Scottrade’s clients will boost revenue with more trades and more opportunities to offer investment advice.

TD Ameritrade’s fourth-quarter results fell short of the 38 cents per share analysts surveyed by Zacks Investment Research expected.

TD Ameritrade said it expects to generate earnings per share between $1.50 and $1.80 next year excluding the Scottrade deal.

Shares of TD Ameritrade Holding Corp. declined $1.62, or 4.37 percent to $35.46. Its shares have risen more than 6 percent over the past year.</s>TD Ameritrade Holding Corp. and its largest stakeholder, Toronto-Dominion Bank, are nearing a deal to buy online brokerage Scottrade Financial Services Inc. for $4-billion (U.S.), according to people with knowledge of the matter.

TD Ameritrade would acquire Scottrade’s brokerage operations for about $2.7-billion in cash and stock, while Toronto-Dominion would purchase Scottrade’s banking operations for $1.3-billion in cash, the people said, asking not to be identified because the talks aren’t public. The takeover may be announced as soon as Monday before markets open in North America, the people said.

The transaction would combine two of the largest online brokerages, an industry under pressure from lower trading volumes and sluggish revenue growth. Such platforms are used by consumers, wealth advisers and other investors to trade securities outside of traditional brokerages. Bloomberg reported last month that Scottrade was working with an adviser to explore a sale. The St. Louis Business Journal reported the pending agreement on Saturday.

A representative for the Toronto-based bank declined to comment, and representatives for Omaha, Nebraska-based TD Ameritrade and Town & Country, Missouri-based Scottrade didn’t respond to messages outside of normal business hours.

Toronto-Dominion Bank owns more than 42 per cent of TD Ameritrade, qualifying it as a non-bank subsidiary of the Canadian lender under U.S. banking regulations.</s>TD Ameritrade, the biggest discount brokerage by trade executions, would acquire Scottrade's brokerage operations, and Toronto-Dominion would buy Scottrade's banking operations, the source said.

The deal could be announced as soon as pre-market hours on Monday, the source added.

In September, Bloomberg reported that Scottrade Financial was exploring a potential sale.

Scottrade has about 3,700 employees in about 500 branches across the United States.

In March, credit rating agency Fitch said Scottrade was trying to move away from focusing on transactional trading revenues and evolve toward more fee-based investment management revenue. [nFit951663]

Fee-based accounts yield more reliable income than commission-based trading accounts that rise and fall with clients' interest in the markets.

Wealth managers in the United States are cutting fees, relying more on technology to give advice and reducing the minimum amounts clients can hold in their brokerage accounts, all in preparation for a new rule governing how they advise retirement savers. [nL2N16T0RO]
U.S. discount brokerage TD Ameritrade agrees to buy Scottrade for $2.7 billion.