E*TRADE Acquires Telebanc for $1.8 Billion
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Calling it the first pure-play Internet company to integrate banking and brokerage services, E*TRADE Group Inc. announced Tuesday it is acquiring Internet bank Telebanc Financial Corp. for approximately $1.8 billion.
Terms of the agreement call for Telebanc shareholders to receive 2.1 shares of E*TRADE common stock for each share of Telebanc common stock. The merger is valued at roughly $1.8 billion based on E*TRADE's closing price on Friday, May 28. Once the merger is finalized, Telebanc shareholders will own approximately 13 percent of E*TRADE's fully diluted common stock. The transaction will be accounted for as a pooling of interests and is slated to close sometime this fall upon regulatory and shareholder approval.
The merger creates an Internet-based, FDIC-insured cash management account which the companies predict will change the future of personal financial services. Aimed at millions of Internet consumers, the online financial management resources of E*TRADE combined with online banking capabilities is expected to eliminate the need for multiple financial relationships.
The merger also will offer online consumers for the first time, access to full-featured, FDIC-insured Internet cash management accounts, including ATM access through the national Cirrus network, online bill payment and investing services, enabling them to consolidate brokerage and banking accounts.
E*TRADE said it has invested more than $350 million in its patent-pending Stateless Architecture, enabling it to cost-effectively support a range of products and transactions. Through Telebanc, E*TRADE will acquire the regulatory, management and operating experience needed to leverage the companies' product lines. According to Telebanc, it is larger than the next five pure-play Internet banks combined.
"This e*merger creates the most comprehensive platform for online brokerage and banking, leveraging the strong brand names of E*TRADE and Telebanc, as well as our combined financial resources and leading edge technologies," said Mitchell H. Caplan, Telebanc vice chairman, chief executive officer and president.
The companies said that the merger will diversify and strengthen E*TRADE's revenue base, expanding the asset management company it created in February when it launched the first of several proprietary mutual funds. E*TRADE also plans to capitalize on Telebanc's capital market expertise to enhance the profitability of selected asset management products.
"Traditional companies are focused on re-engineering their legacy products and high-cost distribution networks while defending their marketplace. This strategic e*merger, the first to combine two e-commerce leaders, will enable us to deliver unparalleled value to consumers as we continue to expand and evolve an already rich set of investment, banking and cash management tools," said Christos M. Cotsakos, chairman and chief executive officer of E*TRADE.
"We also will continue to enhance our unique business model as we combine our all-electronic, fully scaleable platforms to achieve fast time to market, exceptional cost efficiencies and a sustainable pricing advantage over the competition," Cotsakos said.