E*TRADE FINANCIAL Corporation announced its intention to acquire BrownCo, an online brokerage service of JPMorgan Chase & Co. for $1.6 billion in cash.
The transaction is expected to deliver pre-tax operating synergies of approximately $154 million, which will be composed of $91 million in expense synergies and $63 million in revenue synergies. After completing integration, on a full-year run rate basis, the deal is expected to be accretive to earnings by $0.07 per share. The company expects to achieve full-year run rate synergies nine months after close.
E*TRADE FINANCIAL expects to finance the transaction through approximately 65-75 percent in common equity and mandatory convertible securities with the remainder coming from proceeds of senior notes.
“BrownCo is a premier brokerage asset and an ideal strategic fit for E*TRADE FINANCIAL, accelerating the build out of our business model in this fast-consolidating industry,” said Mitchell H. Caplan, Chief Executive Officer, E*TRADE FINANCIAL. “The acquisition of BrownCo complements the recent acquisition of Harrisdirect, by strengthening and extending our asset gathering strategy with a strong customer demographic, while delivering greater scale.”
BrownCo’s 200,000 customers have the second highest average account balances in the industry, exceeding $145,000 per account. As of the date of this announcement, E*TRADE expects to double its customer margin balance, with BrownCo contributing approximately $3 billion to E*TRADE’s anticipated $3.2 billion margin account balance following the close of the Harrisdirect acquisition. In addition, E*TRADE is expected to gain $29 billion in assets, $3.4 billion in customer cash and approximately 28,000 daily average revenue trades — all of which can be uniquely monetized by the retail and institutional components of E*TRADE FINANCIAL’s integrated business model.