The on-again off-again speculation about a TD Ameritrade takeover of rival discount broker E*Trade Financial are on again.
The latest round started on Friday, after E*Trade disclosed that its board had received a letter from the hedge fund Citadel, who is its largest shareholder, suggesting, among other things, that it look at a potential sale of the company. In response, E*Trade has formed a special committee of the board to conduct a review of the company's alternatives - again.
This is nothing new. E*Trade retained J.P. Morgan to look at its alternatives and concluded at the end of last year that a sale wasn't the best one. But that doesn't mean that a takeover won't ever happen.
Toronto-Dominion Bank is TD Ameritrade's biggest shareholder, and the bank's CEO Ed Clark brushed off the idea of an E*Trade acquisition back in January, 2010, suggesting it might carry too much risk. "I think everyone recognizes that E*Trade has to play out and we have to see what happens to its balance sheet," he said at that time, adding that no one could know the value of E*Trade given the lack of clarity about the U.S. housing market. He also said it would take all of 2010 to get more clarity. That time has now passed.
The topic will undoubtedly come up at TD Ameritrade's regularly scheduled board meeting Tuesday, as the Wall Street Journal noted this morning. While the company has the wherewithal to do an acquisition, it remains to be seen whether there is now enough clarity about E*Trade's future - and just how bright that future looks.
E*Trade was hit hard during the financial crisis, and it hovered near possible bankruptcy in early 2008. Its shares dived over fears about mortgage loan losses. TD Ameritrade gained customers at E*Trade's expense during the worst of the crisis.