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Wit Accepts E*Trade's E*Offering

E*Trade married off its E*Offering unit to Wit Capital for a handsome $328 million dowry. This stock swap looks tailor made for both companies in a couple of respects. This is a case of trading Baltic and Mediterranean in exchange for the remaining two Railroads I don't already own.

Bottom line is, both parties got what they wanted and can get back to what they do best.

E*Trade (EGRP)


ONLINE BROKER GETS 100,000
SOUNDVIEW RETAIL ACCOUNTS

NOT TOO SHABBY, BUT MORE
IMPORTANTLY...

GETS 32 MILLION WIT SHARES
VALUED AT $325 MILLION AND
CASHES OUT OF STRUGGLING
E*OFFERING UNIT.
 

Here's how the deal breaks down. E*Trade gets 32 million shares, or 25%, of Wit stock and 100,000 brokerage accounts to boot, courtesy of Wit's Soundview subsidiary. The discount e-broker with the funny commercials already boasts more than 2.5 million retail accounts, so it's not much more than a drop in the bucket.

But it sure spots E*Trade and venture partners, Softbank and General Atlantic, smashing returns on a struggling venture into the investment banking biz. And that's how E*Trade comes out a winner here. The 100,000 Soundview accounts and some access to Wit's IPOs and secondary offerings just sweeten the pot.

Wit Capital dumped its brokerage accounts which gives it some wiggle room to focus on its bread and butter - underwriting duties related to IPOs, secondaries, and follow-ons. It's also key to have sugar daddy Softbank's deep pockets stay for a visit.

Menlo Park's E*Trade is on a mission to diversify its revenue streams, and the upstart is doing a heck of a job so far. Its $2 billion Telebank Financial land-grab put online bill-pay, loans, fund transfers, and access to ATMs, at the fingertips of armchair investors. In March, E*Trade added brick-and-mortar deposit capabilities with its acquisition of Card Capture Services and its 8,500 ATM machines.

It's a story of the chicken and the egg, and I'd speculate that it's easier to get savvy new investors to warm to the idea of banking services through their brokerage. Stock trading through my brick-and-mortar bank holds little appeal, which explains why E*Trade ate the veggies first, before adding the dessert platter.

Would I buy low and sell high through First Union online? I wouldn't even dream of banking with the arrogant offline dinosaur. How about pure-Web banker Net.B@nk ? Anybody who's used 'em would likely prefer to trust their funds with a rodeo clown.

Brick-and-mortar banks face stiff competition down the road, while most online banks will have the stuffing beat out of them by e-brokers who offer an umbrella of services to the retail investor.

Wit Capital (WITC)


THE BROKER SERVICES FIRM
DIVESTS 100,000 ACCOUNTS

IT ALLOWS WIT TO FOCUS ON
ITS