Analysts see little risk in TD Ameritrade deal; changes ahead for Whole Foods with new shareholder

By Cristal Cody

New York, Jan. 8 - TD Ameritrade Holding Corp. said Thursday it plans to acquire thinkorswim Group Inc. in a cash-and-stock deal valued at about $606 million.

Also on Thursday, changes could be in store for Whole Foods Market Inc. with activist investor Ron Burkle accruing shares.

Meanwhile Thursday, investor reaction was mixed on Wall Street.

The Dow Jones Industrial Average fell 27.24 points, or 0.31%, to close at 8,742.46, while the broader indexes rose.

The S&P 500 index closed up 3.08, or 0.34%, at 909.73, and the Nasdaq Composite index rose 17.95, or 1.12%, to 1,617.01.

Little risk seen in TD Ameritrade deal

Shares of thinkorswim shot up $2.69, or 47.61%, to close Thursday at $8.34, while TD Ameritrade shares fell 8 cents, or 0.59%, to $13.40. Shares of thinkorswim have traded as high as $17.05 over the past year.

In a conference call with analysts to discuss the deal, Fred Tomczyk, president and chief executive officer of TD Ameritrade, said the company initially made an all-cash offer, but thinkorswim wanted the stock as well.

The offer includes $3.34 in cash and 0.398 TD Ameritrade shares for every share of thinkorswim.

TD Ameritrade plans to buy back 28 million shares of outstanding stock to use for the deal to avoid diluting the company's stock.

"This transaction is directly aligned with our growth strategy, creating scale for the trading side of our business and, more importantly, advancing our trading strategy by several years," Tomczyk said in a statement.

The companies expect the deal to close within six months.

"Given the depressed level of the stock and the market, this has been a good deal for Ameritrade," said Mark Argento, a senior analyst with Craig-Hallum Capital. "The ability for Ameritrade to get this deal done is fairly high. We don't think there's a lot of risk to the deal not closing."

While TD Ameritrade leads the industry in equity trades placed each day, thinkorswim leads in retail options trades placed daily. The combination was a little surprising for some market watchers.

"Although TD Ameritrade has signaled its acquisitive intent for some time, this transaction is somewhat unexpected because it does little to enhance the company's asset-gathering strategy, as SWIM is an active-trader oriented business, generating more than 40% of its revenues from commissions," Matt Snowling, an analyst with Friedman, Billings, Ramsey & Co., said in an investors note.

"Nevertheless, SWIM should enhance TD Ameritrade's active trading platform and provide a more competitive offering in the fast growing options market," he said. "Altogether, we view this transaction as a net positive for the company, but given its narrow focus on active option traders, one [that's] not a game changer or one that will deliver meaningful upside earnings surprises."

Burkle to push for Whole Foods change

Whole Foods Market may have more than the Federal Trade Commission to contend with after Burkle's Yucaipa Cos. accrued a 7% take of the company's outstanding stock.

According to a filing with the Securities and Exchange Commission, Yucaipa plans to talk with Whole Foods' board to take action to increase shareholder value, which could include a sale of the company.

Burkle "is the kind of activist investor who would want seats on the board and the kind of guy who would want to shop the company if he thought that was the best way to go," a market analyst said Thursday. "These guys are going to push for an acceleration of change."

Whole Foods' stock jumped $2.26, or 22.58%, to close Thursday at $12.27.

Burkle also was the major shareholder of Wild Oats Markets Inc. before it was acquired by Whole Foods. The FTC is opposing the Wild Oats merger a year after it was completed.

"Burkle is probably one of the smartest guys in the supermarket industry. He started out as a bagger and knows the industry better than anybody else," the analyst said.

"If he thinks he can unlock value in Whole Foods by working with management to close more stores or change the value, I wouldn't be surprised if he just becomes an active member of the management of the company."

Mentioned in this article:

TD Ameritrade Holding Corp. Nasdaq: AMTD

thinkorswim Group Inc. Nasdaq: SWIM

Whole Foods Market Inc. Nasdaq: WFMI

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