Hedge funds fire back at TD Ameritrade's acquisitions strategy

OMAHA, Neb. — Two hedge funds with stakes in TD Ameritrade Holding Corp. sent a letter to the company Friday demanding that Ameritrade examine potential buyouts by other online brokerages without influence from its largest stakeholder.

The letter from investment funds Jana Partners and S.A.C. Capital Advisors questioned Ameritrade's ability to grow without a buyout and called on the company, based in Omaha, Neb., to explain to shareholders why it should not immediately pursue a deal — ideally with E-Trade Financial Corp. or Charles Schwab Corp.

"Quite frankly, we fail to see how an unbiased review could leave any doubt that the 'right time' to pursue such a combination is now," said the letter written by Jana managing partner Barry Rosenstein and S.A.C. chief executive Steven A. Cohen.

The funds said Toronto-Dominion would oppose a buyout because it could diminish the bank's stake in Ameritrade and take away its strategic benefits to the Canadian bank.

The funds said comments last week from Ameritrade did little to address questions about whether Toronto-Dominion bank, which owns a 40 percent stake in Ameritrade, was standing in the way of a possible deal.

"Toronto-Dominion may if it chooses oppose such a transaction, but its concerns cannot be given pre-eminence given that a majority of shareholders could approve such a combination even over Toronto-Dominion's objections," Rosenstein and Cohen wrote. "Alternately, if Toronto-Dominion wishes to prevent this result, it can offer other shareholders full and fair value for their stakes."

"If the board were vigorously pursuing a transaction with no onerous preconditions set by Toronto-Dominion, it could convince Schwab's leadership of the merits of such a combination given the verifiably significant synergies it would create," the funds said.

A telephone message left for a Schwab spokesman was not immediately returned.

E-Trade chief executive Mitchell H. Caplan declined to comment Friday when asked about Ameritrade at a conference of industry analysts in New York.

"By and large I feel like we're where we want to be on the product spectrum," Caplan said.

Toronto-Dominion spokesman Neil Parmenter would not comment on specific parts of the letter but said the bank's interests are aligned with Ameritrade's and its shareholders.