Ameritrade Grabs TradeCast for $67 Million

Discussion in 'Trading' started by Baron, Feb 14, 2001.

  1. Baron

    Baron ET Founder

    Ameritrade announced that it would buy <a href="">TradeCast</a> for at least $67 million in a stock, moving to gain a foothold among active and professional stock traders, whose business is a lucrative prospect for online brokerage firms.

    Ameritrade, based in Omaha, Neb., will exchange 7.5 million shares if its stock for the outstanding ownership interest in TradeCast, a closely held Houston company that provides traders with direct access to exchanges and other stock-trading venues.

    Based on Wednesday's closing price of $8.97 for Ameritrade's shares, the deal is worth at least $67 million. Ameritrade said the value of the transaction could increase by about 750,000 shares based on the performance of TradeCast's business before the deal is closed.

    Ameritrade's move mirrors one taken by Charles Schwab Corp., the biggest online brokerage firm, which last year purchased <a href="">CyBerCorp Inc.</a>, an Austin, Texas, firm that catered to day traders and also provides direct access to the marketplace.

    Jim Ditmore, a spokesman for Ameritrade, said the company will use the acquisition to focus on providing services to professional traders and smaller institutional investors, including money managers, hedge fund directors and day-trading forms.

    "Our primary focus is to take the business-to-business segment that they deliver to and really grow that business," Mr. Ditmore said Wednesday.

    TradeCast currently serves about 60 broker-dealer firms and several thousand individual investors. Bobby Earthman, president of TradeCast, said the firm processes about 60,000 trades a day through its network; Ameritrade handled 111,000 a day during the first quarter ending Dec. 31.

    Direct-access trading has emerged as an important tool for active traders because it allows them to direct their orders to specific market makers or electronic trading venues where they see the best price.

    Mr. Earthman said the direct-access trading capability is the second generation of Internet investing, and will likely become the standard for all investors in the future.

    "If I look down the road three years from now, this type of technology is going to be so prevalent, not just in the hands of a select few," Mr. Earthman said.

    Still, active traders are seen as a valuable source of revenue for brokerage firms. Data show that even when the market has been volatile, as it was for much of the final quarter of 2000, active traders are less likely to remain on the sidelines than average investors.

    Other online brokerage firms have clamored to offer this capability to its investors. As a result, Ameritrade has lagged its competitors in reaching out to the most active traders. Several of its rivals, including Schwab , E*Trade Group Inc., <a href="">Datek Online Brokerage</a> and Fidelity Investments have already moved firmly to establish ground among these traders.

    Following completion of the deal, which is expected to happen within 30 to 60 days, TradeCast will operate as a subsidiary of Ameritrade.