Brokerage merger bid highlights industry woes

OMAHA -- A desire to cut costs amid falling trading volumes could be behind the reported merger talks between the nation's largest online stock brokerages, analysts say.

Citing unnamed sources, The New York Times reported yesterday that E-Trade Financial Corp. made an unsolicited bid to buy Omaha-based Ameritrade Holding Corp. for more than $5.5 billion. The offer was made Friday, even as Ameritrade has been holding secret negotiations to buy a third brokerage, TD Waterhouse, the Times and The Wall Street Journal reported.

A spokeswoman for Ameritrade said yesterday that the company would not comment on the report.

Following the reports, Ameritrade shares soared almost 19 percent.

Matthew Fischer, an analyst with IRG Research, said that in a climate of declining trade commissions and dropping trade volume, a merger would make sense for investors.

''You can get rid of some of the operations and some of the marketing costs and just throw more trades down your existing pipeline," Fischer said. ''It enables them to keep reasonably good margins in a revenue-per-trade environment."

While investors might like the idea of consolidation, those who control Ameritrade, like chairman J. Joe Ricketts and the Ricketts family, might not, Fischer said.

''Ameritrade wants to maintain control of the company in any type of merger. This could pose a problem," he said.

Matthew Snowling, a financial analyst with Friedman, Billings, Ramsey Group Inc. in Arlington, Va., said soft trading volume is a factor in merger or takeover attempts, but said consolidation of online brokerages makes sense for investors in the long run.

''I think we're heading in one direction here, and that's change," Snowling said.

Ameritrade reported last month that second-quarter profit slipped 12 percent to $71 million, or 17 cents a share. Earnings for the same period in 2004 were $81 million, or 19 cents a share.

Representatives for New York-based E-Trade declined to comment to the Times. The Times said a spokesman for New York-based TD Waterhouse could not be reached for comment.