Thursday, June 23, 2005

Analysts Raise TD Stock Targets on Ameritrade Deal

Reuters, 23 June 2005 12:55 PM ET (In U$ unless noted)

Toronto, June 23 (Reuters) - Analysts gave a broad thumbs-up on Thursday to Toronto-Dominion Bank's sale of its Waterhouse USA unit to Ameritrade Holding Corp. , a deal that will give TD a hefty stake in a top player in the competitive discount brokerage industry.

The deal, announced on Wednesday, will give TD a 32 percent interest in the $9 billion merged company in exchange for a Waterhouse USA franchise that had struggled with weak profits and softening trading volumes.

TD plans to raise its stake to 39.9 percent when the deal closes in about six months. The combined entity, to be called TD Ameritrade, is expected to have the highest trading activity in the industry.

Brokerages were quick to raise their 12-month target prices for shares of TD, Canada's No. 2 bank by assets, with some characterizing the deal as TD purchasing Ameritrade, rather than selling Waterhouse.

"In our view, the real way to look at this transaction is that TD stands to acquire virtual control of Ameritrade, gaining a highly regarded operating management team, which also has a strong track record at integrating acquisitions," said Desjardins Securities' analyst Michael Goldberg.

The deal comes just months after TD closed its acquisition of a majority stake in Maine-based Banknorth Group Inc., giving the bank a foothold in both the U.S. wealth-management and retail-banking markets.

"Strategically, TD will now own 40 percent of the largest player in the U.S. discount brokerage business, rather than 100 percent of a mid-sized player in an industry where scale is a key advantage," said Andre-Philippe Hardy, analyst at Merrill Lynch.

"Furthermore, TD Ameritrade is much better positioned to take advantage of further consolidation in the industry than TD was on its own."

Hardy raised his price target for TD shares to C$59 from C$56, and others were quick to follow suit.

National Bank Financial increased its target to C$61 from C$58, while RBC Capital Markets boosted its rating to C$62 from C$59, implying the shares will rise another 12 percent over the next year from the record high of C$55.38 they hit on Thursday on the Toronto Stock Exchange.

The deal follows weeks of speculation about consolidation in the sector and raises questions over the next move of rival E*Trade Financial Corp. , which had pursued its own bid for Ameritrade.

But analysts said E*Trade faces an uphill battle, particularly with a large chunk of Ameritrade controlled by the company's founding Ricketts family.

"While nothing precludes E*Trade from pursuing Ameritrade with another offer, we believe the economics of trumping the current offer are far less attractive," said UBS Investment Research analyst Jason Bilodeau, who boosted his price target on TD to C$64 from C$61.

The agreement includes a break fee of $97 million.

While the deal has been a positive for TD's shares, it has driven Ameritrade's stock through the roof.

The company's shares, which rocketed up more than 20 percent on Wednesday, were up 88 cents, or 4.9 percent at $18.75 on Nasdaq on Thursday. ($1=$1.23 Canadian)