Friday, September 15, 2006

DBRS Views TD Investment in TD Ameritrade as Favourable

Investment Executive, James Langton, 15 September 2006

Dominion Bond Rating Service says it views yesterday’s announcement that TD Bank has entered into a hedging arrangement designed to facilitate an increase in the bank’s holdings in TD Ameritrade Holding Corp. in 2009 as favourable.

In a research note, DBRS points out that TD is currently limited by the TD Ameritrade Stockholders Agreement to beneficial ownership of 39.9% of Ameritrade until January 2009, when the limit increases to 45%. “The hedging arrangement is designed to lock in a price for the additional shares that will bring the investment up to 45% until that time,” it explains.

DBRS says that it views the investment in Ameritrade as favourable, “in part because the business has sufficient scale to compete effectively in its market niche, with a number two position in the U.S. industry.”

“While DBRS views the bank’s sub-50% ownership position as a negative factor, even though it is the largest shareholder, this aspect of the investment is largely mitigated by TD’s ability to nominate five of the 12 members of the board of directors,” it adds. “The deal is structured such that TD will not exercise any voting rights over its investment in Ameritrade in excess of 39.9% prior to 2009.”