E*TRADE Acquires Telebanc for $1.8 Billion

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
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.

By offering a central account, customers will be able to conduct a full
range of transactions online, including buying mutual funds, CDs and fixed
income securities, trading equities and paying bills. E*TRADE said through
the integration of the companies services, a cost-effective,
scalable business model will be achieved, while boosting E*TRADE’s customer
acquisitions and aggressively expanding its existing one
million-plus customer account base.

E*TRADE said it has invested more than $350 million in its patent-pending
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
e*merger, the first to combine two e-commerce leaders, will enable us to
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
and a sustainable pricing advantage over the competition,” Cotsakos said.

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