E*Trade: Potential Ameritrade Merger Makes Sense for Both Companies 37 comments
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Great news for 3Com (COMS) investors as yesterday Hewlett-Packard Co. (HPQ) agreed to acquire the networking-equipment maker in a deal worth $2.7 billion in cash, as the computer giant looks to boost its offering of servers, storage and networking services. According to HPQ, the deal values 3Com at $7.90 a share.
COMS made the fund I manage and me a 277% gain in 1 year. My average cost is $2.10 a share. My last COMS article was a year ago (3Com Back on Sale).
I am very delighted to sell my COMS for $7.90 cash per share. I shall invest my gains into E*Trade (ETFC) which is now at $1.51 a share. ETFC offers investors a real bargain as it trades below book value and is expected to return to profits by the end of 2010. Analysts have become bullish over the past several months on ETFC. Goldman Sachs (GS) now holds 16 million shares of ETFC and will likely soon reiterate its ETFC buy rating with a $2.30 target.
I strongly believe TD Ameritrade (AMTD) will buy ETFC before the end of this year. 
In June of 2007, it was revealed that hedge funds JANA Partners and S.A.C. Capital Advisors sent a letter to AMTD saying they wanted to see the company pursue a combination with ETFC. The funds owned an 8.4% of AMTD shares at that time.
The hedge funds argued that a merger would "dramatically increase" shareholder value as a combination of two online brokerages would reap economies of scale. The funds estimated an AMTD-ETFC merger would create annual cost savings of $450 million to $500 million.
Now, it makes perfect sense for AMTD to buy ETFC as now all the analysts believe ETFC has turned the corner. It would take AMTD about 15 years to add 2.7 million brokerage accounts, or it could gain that amount in a flash by buying ETFC.
I believe AMTD will offer part cash and stock i.e. $1 share in cash and 10 shares of ETFC for every 1 share of AMTD stock, which is about a $3 a share value for ETFC.
Disclosure: Long AMTD, ETFC, COMS and GS.
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This article has 37 comments:
You were accurate in predicting that the analysts would upgrade Etrade weeks ahead of the upgrades. I hope you are right this time as well! I have a large stake in Etrade and planning to add more.
Btw, what is the name of the fund you manage?
Thanks
eContrarian
Jeremy,
I have been long on ETFC for some time and have been hoping for a acquisition as well. I picked some interesting news recently that seem to put pressure on the stock: Two days ago ETFC has the largest increase in Short Interest in the NYSE (+13.1%), see below
COMPANY Oct. 30 Oct. 15 NETCHANGE PCT CHANGE
----------------------... 108,699,116 96,080,532 12,618,584 13.1
from www.reuters.com/articl...
What do you make of this?
"The Rights Plan elimination improves corporate governance, while also increasing the likelihood of the company's eventual acquisition," said Matthew Albrecht, a financials analyst at Standard & Poor's Equity Research.
Also CEO is set to step down by years end. It all adds up.
I'm not paid to write articles. I am invested in ETFC and fully believe ETFC is the most undervalued financial stock on wallstreet.
On Nov 12 08:39 AM Jeremy Richards wrote:
> Added note: ETFC board of directors scrapped a Stockholder Rights
> Plan that was essentially a "poison pill" set up in 2001 to prevent
> a hostile takeover of the company.
>
> "The Rights Plan elimination improves corporate governance, while
> also increasing the likelihood of the company's eventual acquisition,"
> said Matthew Albrecht, a financials analyst at Standard & Poor's
> Equity Research.
>
> Also CEO is set to step down by years end. It all adds up.
>
> I'm not paid to write articles. I am invested in ETFC and fully believe
> ETFC is the most undervalued financial stock on wallstreet.
Chase needs a retail brokerage operation; Capital One needs a better one than they've got now; Wells needs a better one than they've got now; ANYONE but TDAmeritrade!
Until it is clearer, one way or the other, the stock will stay down and buyers will stay away. It looks to be going pretty good. I'm in. :.)
During the latest quarters, delinquency rate seem to have stabilized, I'd like to wait another quarter or two to see whether it has truly stabilized.
On Nov 12 04:04 PM kmkkmk wrote:
> JANA Partners were pressuring AMTD to merge when ETFC was at $25.
> If AMTD would have caved to the pressure and merged at that time,
> it would be AMTD stock in the dumper instead of ETFC. I'm not sure
> I would be using the "wisdom" of Jana Partners to support my thesis.
With the thrashing Citadel dished out memories will be long and support for E may not happen. While I too looked forward to the return of this company Citadel's enormous selling at a key inflection point has soiled E to a low volume, range bound has been that has no interest from the street.
Nice pump and good try but as you can see no one's buying this baseless dreaming.
On Nov 12 05:24 PM skess11 wrote:
> No company is giving Citadel that kind of influence on their company
> with a stock deal. There were loads of investors ready to back this
> company and lots of institutions bought too.
>
> With the thrashing Citadel dished out memories will be long and support
> for E may not happen. While I too looked forward to the return of
> this company Citadel's enormous selling at a key inflection point
> has soiled E to a low volume, range bound has been that has no interest
> from the street.
>
> Nice pump and good try but as you can see no one's buying this baseless
> dreaming.
It's Citadels cash cow for the info and market control for all their other activities. They don't give a hoot about the shares unless they can find a new sucker.
Believe me I wish it weren't so, but that's just the way it is.
On Nov 12 06:14 PM protrader101 wrote:
> So you must be short I gather? Well Citadel invested a huge amount
> when ETrade was in the high $4 range. Citadel sold some so what they
> HELPED save ETrade. This will move much higher buyout or not. AMTD
> is about 99% ready to buy ETFC says my broker at Smith Barney. Maybe
> AMTD stock price is being driven up & ETFC being held down for
> the offer to be accepted.
I've already taken this opportunity to DCA down. Time to just wait and see...
I too manage money
I think the deal makes sense what do you think ETFC is worth?
You must be paid to write the ETFC and SIRI forecasts.
After reviewing YOUR past articles on ETFC and there are a ton of them on Seeking Alpha, you have been wrong every time! You are terrible at predictions. Please give it up.
I suggest you do some due diligence and read the MANY similar ETFC articles by this **stock-pusher**, as can be found here:
seekingalpha.com/autho...
When you do so, take another minute to correlate the predictions offered with the stock price at the time - which has gone basically nowhere but DOWN.
There is a possibility this "fund manager" will eventually be right about ETFC - SOMETIME this century - but I sure wouldn't put a whole lot of faith in it.
"Now, it makes perfect sense for AMTD to buy ETFC as now all the analysts believe ETFC has turned the corner. It would take AMTD about 15 years to add 2.7 million brokerage accounts, or it could gain that amount in a flash by buying ETFC."
Think you're looking at this wrong. Profits are mostly generated at AMTD by trading commissions and the ETFC accounts are slugs , trading on average about once a month.
The recent SWIM acquisition brought them extremely high volume traders , note the recent jump in AMTD DARTs after SWIM came on board. Seems to me more logical that AMTD would go after an OXPS or IBKR for those lucrative accounts than ETFC.
Add in the big debt levels and liabilities ETFC would bring to a merger and I think your theory is weak at best.
Here's Reppetto's comment on the loan portfolio value:
"TD Ameritrade is the most likely acquirer for E*TRADE," he says. The main problem with acquiring E*TRADE is taking over the roughly $8.28 billion in home equity loans, which would have to be marked to market, a burden he believes TD Ameritrade could handle.
The going rate for fair value on those loans is roughly 60 cents on the dollar, a level that would result in a $3.3 billion writedown for the acquirer. Repetto says TD Ameritrade's TD Bank business could cover that writedown and assume the assets, while the company's brokerage arm would be happy to take over the online trading accounts. "It rids itself of a competitor," says Repetto. "
I have done very well trading ETFC with Jeremy Richards views. I bought at $1.41 on his first ETFC article on 03-June-09 I sold at $1.91 on 12-June-09 ETFC had a high of $1.98 on 12th of June.
Just 8 trading days & I made 35%
Jeremy Richards ETFC article on June 24th 09 stock had dropped because of the offering. I bought after reading his article I paid $1.20 and sold at $1.50 30 days later for a 25% gain. Jeremy said it would see $1.55. He also wrote "Given the recent remarks from the analysts, I believe new investors buying now are getting ETFC at a substantial discount to its fair value of around $2 a share (estimated by analysts at current)." ETFC traded at $2.08 on Sept 22nd 09. I should of held could of made 65% but 25% is could & I'm up 60% so far at this time.
I did buy ETFC at $1.85 on his Article dated September 21st ETFC was at $1.84 written in his article next day was $2.08 & would of stayed above $2 if not for CITADEL selling. I sold at $2 made 9%.
His 4th article on Sept 25th 09 ETFC opened at $1.74 I bought it at $1.75 ETFC had a high that day of $1.88 I held it and placed a 10% trailing stop. I was stopped out at $1.69 . It was clear CITADEL was selling ETFC traded in the $1.80's for 4 days I could of sold for a profit. I lost 3%.
I bought at $1.71 on his OCT 16 09 Article I placed a 10% trailing stop was stopped out $1.60 8 trading days later. I could of sold at $1.78 next trading day OCT 19th.
Investors that bought on his first or second ETFC article are up. Jeremy said ANALYSTS would all upgrade ETFC he was correct.
ETFC is lower now than when most of the analysts upgraded it.
I have been buying in ETFC since it bottomed at $1.33 I have an average cost of $1.45 now and a 57% gain.
Thanks Jeremy for your informative articles. Good luck to all ETFC long investors. Short sellers should be shorting other stocks with downside. ETFC will soon see $2 again. Bank is now stable. CEO leaving. Top brokerage platform. Takeover is a given.
On Nov 13 10:37 PM Buford T. Justice wrote:
> Lest anyone actually believe Mr. Richards breathless "news" about
> E-Trade being undervalued, or a soon to be merger/acquisition target,
> or that they have found King Solomon's mine...
>
> I suggest you do some due diligence and read the MANY similar ETFC
> articles by this **stock-pusher**, as can be found here:
>
> seekingalpha.com/autho...
>
> When you do so, take another minute to correlate the predictions
> offered with the stock price at the time - which has gone basically
> nowhere but DOWN.
>
> There is a possibility this "fund manager" will eventually be right
> about ETFC - SOMETIME this century - but I sure wouldn't put a whole
> lot of faith in it.
My chart technicals show ETFC is staring a new uptrend. Volume is low but that isn't a bad thing. Rumor from a stock chat forum is a potential ETFC buyer maybe shorting ETFC to keep it low making a buyout offer more attractive.
Next week will Goldman give its clients a 60 Day follow up opinion on its 6 month ETFC rating? NOV 18th could be a good day.
By member
on 11/14/09 10:45 AM
There is news floating around that TD Ameritrade (AMTD Quote) had signed an acquisition agreement with E*Trade (ETFC Quote). This would be best deal to TD Ameritrade wher E*Trade is having good Brand and key clients in the market. the acquisition will contribute positively to both AMTD and E*Trade in both the ways of company's strategy of growing revenue. I think its of time to buy E*Trade shares.
Regards
Market Analyser
www.thestreet.com/stor...
On Nov 14 12:10 PM User 488509 wrote:
> Jeremy wrote,
>
> "Now, it makes perfect sense for AMTD to buy ETFC as now all the
> analysts believe ETFC has turned the corner. It would take AMTD about
> 15 years to add 2.7 million brokerage accounts, or it could gain
> that amount in a flash by buying ETFC."
>
> Think you're looking at this wrong. Profits are mostly generated
> at AMTD by trading commissions and the ETFC accounts are slugs ,
> trading on average about once a month.
> The recent SWIM acquisition brought them extremely high volume traders
> , note the recent jump in AMTD DARTs after SWIM came on board. Seems
> to me more logical that AMTD would go after an OXPS or IBKR for those
> lucrative accounts than ETFC.
> Add in the big debt levels and liabilities ETFC would bring to a
> merger and I think your theory is weak at best.
> Here's Reppetto's comment on the loan portfolio value:
>
> "TD Ameritrade is the most likely acquirer for E*TRADE," he says.
> The main problem with acquiring E*TRADE is taking over the roughly
> $8.28 billion in home equity loans, which would have to be marked
> to market, a burden he believes TD Ameritrade could handle.
>
> The going rate for fair value on those loans is roughly 60 cents
> on the dollar, a level that would result in a $3.3 billion writedown
> for the acquirer. Repetto says TD Ameritrade's TD Bank business could
> cover that writedown and assume the assets, while the company's brokerage
> arm would be happy to take over the online trading accounts. "It
> rids itself of a competitor," says Repetto. "
KISS.
On Nov 14 03:43 PM redbeard20000 wrote:
> Funny, AMTD says its clients traded 12.9 times per year on average
> this year. Lets see... 12.9/12 = .... about once per month. Don't
> know why you're always bashing ETFC. Maybe you'll stop once they
> post a profit this quarter.
Regardless I still think Etrade is a great buy at these levels, in 2 years they'll have a market cap rivaling AMTD. They make the same amount as AMTD on a pre-provision basis, and I wouldn't be surprised if their return to profitability and financial soundness in the next couple of quarters helps them to add a lot more customers. E*Trade is still the most valuable brand out there.
On Nov 14 05:00 PM User 488509 wrote:
> I think AMTD is realizing the high volume option traders are a more
> desirable acquisition target. SWIM clients really goosed their DARTs
> and ETFC clients won't.
> KISS.
I am neither a basher of ETFC, nor a short seller of same. To being a basher of stock hypers, I plead guilty though.
Okay, so you bought into the stock multiple times, and sold the stock multiple times, in some cadence with Jeremy Richards' (aka the stock pusher) articles.
You say you made money - good for you.
The REAL story of your trades, however, is not one of an individual trading on the "content" of Mr. Richards' articles - its trading on the hype effect of same. NONE of the expected/promised things have happened when looked at over the long term - and your short term trades evidence it.
Bottom line, your trades (combined with the hype of the aforementioned articles) conclusively demonstrate that the expected takeover, promised CEO departure (now he's waffling, btw), price rise, etc. are short term (if ever) moves - partly based on hype like that of the author.
On Nov 14 01:39 PM protrader101 wrote:
> buford the basher/short seller of ETFC .
>
> I have done very well trading ETFC with Jeremy Richards views. I
> bought at $1.41 on his first ETFC article on 03-June-09 I sold at
> $1.91 on 12-June-09 ETFC had a high of $1.98 on 12th of June.
> Just 8 trading days & I made 35%
>
> Jeremy Richards ETFC article on June 24th 09 stock had dropped because
> of the offering. I bought after reading his article I paid $1.20
> and sold at $1.50 30 days later for a 25% gain. Jeremy said it would
> see $1.55. He also wrote "Given the recent remarks from the analysts,
> I believe new investors buying now are getting ETFC at a substantial
> discount to its fair value of around $2 a share (estimated by analysts
> at current)." ETFC traded at $2.08 on Sept 22nd 09. I should of held
> could of made 65% but 25% is could & I'm up 60% so far at this
> time.
>
> I did buy ETFC at $1.85 on his Article dated September 21st ETFC
> was at $1.84 written in his article next day was $2.08 & would
> of stayed above $2 if not for CITADEL selling. I sold at $2 made 9%.
>
> His 4th article on Sept 25th 09 ETFC opened at $1.74 I bought it
> at $1.75 ETFC had a high that day of $1.88 I held it and placed a
> 10% trailing stop. I was stopped out at $1.69 . It was clear CITADEL
> was selling ETFC traded in the $1.80's for 4 days I could of sold
> for a profit. I lost 3%.
>
> I bought at $1.71 on his OCT 16 09 Article I placed a 10% trailing
> stop was stopped out $1.60 8 trading days later. I could of sold
> at $1.78 next trading day OCT 19th.
>
> Investors that bought on his first or second ETFC article are up.
> Jeremy said ANALYSTS would all upgrade ETFC he was correct.
>
> ETFC is lower now than when most of the analysts upgraded it.
>
> I have been buying in ETFC since it bottomed at $1.33 I have an average
> cost of $1.45 now and a 57% gain.
>
> Thanks Jeremy for your informative articles. Good luck to all ETFC
> long investors. Short sellers should be shorting other stocks with
> downside. ETFC will soon see $2 again. Bank is now stable. CEO leaving.
> Top brokerage platform. Takeover is a given.
>
> On Nov 13 10:37 PM Buford T. Justice wrote:
I'd be shocked if Moglia approved an ETFC buyout even at these pps levels. Watch them take out OXPS or IBKR instead.
And I still don't think their HELOC's are done causing pain.
On Nov 14 05:42 PM redbeard20000 wrote:
> lol, very true TOS customers are probably more valuable on a one
> for one basis than ETFC. This whole AMTD buy out talk is nonsense
> anyway, they really aren't big enough to swallow Etrade, imo. They
> only have 1 Billion in cash, so it would have to mostly be a stock
> deal. Couple that with the relationship that Etrade has with Citadel
> and all the convertible notes floating out there, not to mention
> the loans, and I don't think they have the firepower to get a deal
> done.
>
> Regardless I still think Etrade is a great buy at these levels, in
> 2 years they'll have a market cap rivaling AMTD. They make the same
> amount as AMTD on a pre-provision basis, and I wouldn't be surprised
> if their return to profitability and financial soundness in the next
> couple of quarters helps them to add a lot more customers. E*Trade
> is still the most valuable brand out there.
On Nov 18 12:46 PM Buford T. Justice wrote:
> PRO (haha) TRADER101:
>
> I am neither a basher of ETFC, nor a short seller of same. To being
> a basher of stock hypers, I plead guilty though.
>
> Okay, so you bought into the stock multiple times, and sold the stock
> multiple times, in some cadence with Jeremy Richards' (aka the stock
> pusher) articles.
>
> You say you made money - good for you.
>
> The REAL story of your trades, however, is not one of an individual
> trading on the "content" of Mr. Richards' articles - its trading
> on the hype effect of same. NONE of the expected/promised things
> have happened when looked at over the long term - and your short
> term trades evidence it.
>
> Bottom line, your trades (combined with the hype of the aforementioned
> articles) conclusively demonstrate that the expected takeover, promised
> CEO departure (now he's waffling, btw), price rise, etc. are short
> term (if ever) moves - partly based on hype like that of the author.
>
>
> On Nov 14 01:39 PM protrader101 wrote:
Thanks.
They only lost 60 mil last quarter on an operating basis. They have an additional 29 mil in interest savings from the debt for equity swap that they'll see this quarter. They also paid a 37 mil penalty for early payment of debt. Those two alone are enough to bridge the gap, and thats not even mentioning loan loss provisioning dropping from 347 mil down to probably just around 300. They're going to be break even or very close to it this quarter, and it will only improve from there.
Sure it might take them 3 years before the mortgage mess is completely behind them, but they'll be making money long before then. Company is easily worth double what its trading at right now in 2 years. Definitely worth the wait in my opinion.