Charles Schwab Corp., the nation's largest discount and online brokerage, today announced that it's buying New York-based U.S. Trust Corp., an investment firm that caters to the very wealthy, for $2.7 billion in stock.
Last year the two companies had a total annual revenue of $4.5 billion, with earnings of $663 million and customer assets of $800 billion.
After the deal was announced, U.S. Trust stocks shot up from $31.87 to $110.75 in midmorning trading on the New York Stock Exchange, while Schwab was down $3.12 at $34.50. Under the terms of the agreement, U.S. Trust shareholders will receive 3.427 shares of Schwab stock for each share of U.S. Trust stock. Based on Schwab's closing stock price yesterday, each U.S. Trust stock was worth $129.
Each company will retain its own name, rather than combining the names.
Analysts said the deal will allow Schwab, based in San Francisco, to improve its client base by giving the company access to very wealthy clients, as well as allowing it to expand products and services for its customers and investment advisers. The deal will give U.S. Trust clients access to more advanced technology.
"We are a fan of this transaction," said Amy Butte, an analyst with the New York-based Bear, Stearns & Co. "This is a swap -- products and services for advanced technology."
In a statement today, Schwab Chairman and co-CEO Charles R. Schwab said, "We've long held a goal of building an organization that can serve investors completely -- from those taking their first steps toward becoming lifelong investors, to those looking to manage their accumulated wealth for themselves and their families. U.S. Trust represents for us a piece of the puzzle that had been missing in our offering to affluent investors...."
Sheldon Grodsky, an analyst with Grodsky Associates Inc. in South Orange, N.J., said the combining of these two companies means that Schwab is able to add another dimension to its already significant operation -- giving financial advice to very rich people.
And Larry Tabb, an analyst with Tower Group in Needham, Mass., agreed that the move puts Schwab squarely in the cat-bird seat.
"This enables them to have access to a large list of high-net-worth, wealth management clients," Grodsky said. "Schwab has a huge business providing technology and [investment] services to self-empowered investors and it has a large network of financial advisors to help medium- to high-level clients manage their money. But they don't have a well-established network for the highest level client -- that's what they're buying."
The transaction, expected to be completed in July, must pass regulatory muster and be approved by U.S. Trust shareholders.