Combine and conquer
A rival online broker woos Ameritrade. Teaming up might be a wise thing
But the dynamics of the market may prove the ultimate arbiter. Both firms trail Fidelity and Schwab in online trading, and Schwab has been aggressively taking market share from both Ameritrade and E*Trade after having repriced its trading commissions and installing founder Charles Schwab back in the CEO's seat. Moreover, Schwab derives 80 percent of its revenue from business other than online trading. Fidelity is so big and so diversified, meanwhile, that it will probably prosper no matter what happens. That leaves the online brokers with the need to come up with a new business model, while also spreading their costs over a wider customer base.
"As of now, Ameritrade is predominantly a transaction-based business model," says IRG's Fischer. "They haven't yet made inroads in the asset management area. Long-term investors want more product offerings; they want more hand-holding."
Synergy. Richard Repetto, a principal with investment bankers Sandler O'Neill & Partners, says a combined company could be worth $14 billion in market value and pegs the amount of synergies from the possible merger at $562 million. While adding that he did not think a deal was imminent, Repetto said the offer "has the potential to shorten what we thought would be a longer timetable for Ameritrade's acquisition-merger."
For Moglia, a deal at a nice premium to Ameritrade's stock would represent a career capstone. An industry veteran, he ran Merrill's private client business and also oversaw its insurance and 401(k) operations. He spent 16 years coaching football and is the author of The Key to Winning Football: The Perimeter Attack Offense. Earlier this year, he wrote Coach Yourself to Success, Winning the Investment Game, which likens individual investing to the game of football. "The whole theme behind the book was to take responsibility. People spend more time preparing for their vacation than they do planning their finances."
The book is laced with simple ideas a novice investor can follow, including how to measure one's tolerance for risk, asset allocation strategies, and tips on the need to rebalance portfolios on a regular basis. Moglia places special emphasis on the need for diversification. "If you take away only one bit of information from this book, let it be this: The mix is more important than the picks," he writes.
Moglia also argues for using ETFs, which happens to coincide with Ameritrade's current strategy. Whether the former coach will be around at Ameritrade to see his game plan through--or even whether Ameritrade will remain independent--will have to await the next chapter.
E*Trade / Ameritrade
Although Ameritrade bests E*Trade slightly in daily trading volumes, E*Trade's bank helps boost its revenues.
E*Trade Ameritrade
Founded 1982 1975
Headquarters New York City Omaha
2004 revenues $1.53 bil. $880 mil.
Average daily trades Jan.-Mar. 135,000 167,000
Stock price (as of 5/11/05) $12.38 $13.76
Year-to-date return -17.2 pct. -3.2 pct.
Source: Company, analyst reports
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