Schwab to buy optionsXpress for $1 billion in stock
Charles Schwab Corp
The all-stock deal, announced by both companies on Monday, is a nod to the increased comfort felt by individual retail traders using options contracts to speculate and hedge, and could help Schwab hang on to the most active and shrewd of its clients.
U.S. options trading volume has grown strongly in recent years, part of the reason Schwab's chief rival, TD Ameritrade Holding Corp
Ten-year-old optionsXpress also gives Schwab a leg up in futures and foreign-exchange trading, diversifying its online platform away from the trading of common stocks, and returning the company to the acquisition game after several quiet years.
It really just lets us jump the curve a little bit in terms of helping these highly valuable clients, Schwab Chief Executive Walt Bettinger said on a conference call with analysts and media.
The acquisition values optionsXpress at $17.91 per share, a 17 percent premium to its $15.33 closing price on Friday. OptionsXpress shares jumped 15.1 percent on Monday, while Schwab shares slipped 0.9 percent.
Under the terms of the deal, which is expected to close in the third quarter, each share of Chicago-based optionsXpress would be swapped for 1.02 shares of Schwab.
Options, like trading in foreign exchange, is an area that had not been embraced by mainstream investors in the past, said Alois Pirker, director of research at Aite Group, a research firm specializing in brokerages and securities markets.
Mainstream investors are expanding their view of asset classes, and the Schwab deal is a reflection of that, he said.
OptionsXpress had 379,000 client accounts and $7.9 billion in client assets at the end of last year; Schwab had nearly 8 million accounts and $1.6 trillion in assets.
Together, the pair logged 315,000 daily average revenue trades in the last quarter of 2010 -- still below TD Ameritrade's industry-best 372,000.
San Francisco-based Schwab said the deal is expected to bring about $60 million in synergies from revenue and another $20 million from cost savings, boosting earnings modestly over the first full year of combined operations.
TIMING
Schwab has been under pressure the last two years as retail trading calmed down and as U.S. interest rates remained near zero, damping its revenue from client assets. But the company's shares are up 27 percent in the last six months, as investors see turnarounds on both of those fronts.
Schwab is trading at a rich multiple. There's a lot of expectations built into the stock, said Diego Perfumo, an analyst at Equity Research Desk. Maybe they won't be able to deliver that growth organically, so they'd better go out and grow through acquisitions.
Perhaps helping to spur the deal, optionsXpress shares dropped nearly 25 percent before the open on December 28 after the company paid a special cash dividend of $4.50 per share. Stocks typically drop the day after payment of a dividend as the payout is no longer implied in the price.
David Fisher, CEO of optionsXpress, will continue to lead the division as its president.
The deal comes as Schwab plans to increase its retail presence across the United States by opening branch offices staffed by independent brokers. The new offices, the first of which will open by the end of the year, will supplement Schwab's existing 300 retail branches.
UBS AG
(Reporting by Jonathan Spicer; additional reporting by Joseph Giannone and Helen Kearney; Editing by John Wallace, Dave Zimmerman and Steve Orlofsky)
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