Announced at the end of 2019, Charles Schwab – TD Ameritrade acquisition came as a shock to analysts on Wall Street, as the merging is believed to create a mammoth with over $5 trillion in client assets. With a planned all-stock deal valued at $26 billion, the agreement previewed that Ameritrade stockholders would receive 1.0837 Schwab shares for every share they own: it is a 17% premium over the stock’s 30-day average price before the spreading of the news. Schwab shares jumped 8% after the announcement, while TD Ameritrade’s stock shot up 16% higher in trading.
The expert in business and digital transformation Vittorio Massone commented on the merger between the two rival companies, which expect the deal to close in the second half of this year: “The initiative taken by Charles Schwab against digital disruption in asset management is very interesting”, he said, adding that “it is clear that no one today can predict how the situation will evolve, but this is proof that incumbents have adequate tools to defend themselves and react”. The merging of the two biggest publicly-traded discount brokers will result in a giant entity with over $5 trillion in client assets, coming from Schwab for $3.8 trillion, and TD Ameritrade for $1.3 trillion respectively. In addition, the mammoth resulting from the merger is expected to control 24 million client accounts.
As Vittorio Massone pointed out, a crucial role within such a context is played by dimensions, in order to improve efficiency and scale in the creation of new platforms: “This deal aims at achieving this specific result”, he commented, adding that “hiring people with digital skills and making them an effective part of the organization proves to be a winning choice, just like Schwab has been doing for a long time”. Furthermore, his perspective on the acquisition of TD Ameritrade by Charles Schwab Corporation also highlighted another adequate tool that incumbents have in order to defend themselves and react: “Rather than defending what cannot be defended, it is better to quickly evolve business models according to the market, for example by reducing and, sometimes, eliminating brokerage fees”.
The expert concluded by pointing out what can be considered as the primary purpose of the operation: “The main objective”, he said, “is not to lose, but to increase the client base and their loyalty, making things very difficult for new players. Sooner or later, these will have to find ways to create profit, and obviously this can only be done by means of motivated and cohesive Executive teams and patient Shareholders”. Vittorio Massone is a manager with great experience in digital revolution, currently dedicated to supporting the digital transformation of important traditional companies, as well as to facilitating the growth and development of “digital native” companies.