isbreaking a long acquisition drought as it will buy OptionsHouse parent Aperture New Holdings Inc.,in a deal that would ramp up the brokerage's options business and expand itsderivatives trading capability.
"Uppingour options capability has long been a goal of ours as we relinquished a strongindustry position in 2009, giving way to a competitor who completed an acquisitionof an options-centric platform," E*TRADE CEO Paul Idzik said during aconference call to discuss the transaction.
Idzik'scomment on his company's strategic position appeared to be a reference to the2009 closing ofTD Ameritrade HoldingCorp.'s acquisition of thinkorswim Group Inc., a provider ofonline brokerage, investor education and related financial products andservices.
Thetransaction with Aperture comes at a time when E*TRADE's growth in retailmarket options contract has "leveled off sometime ago," Idzik said.
OptionsHousewill add 154,000 customer accounts with $3.6 billion in customer assets,including $1.4 billion in cash, to E*TRADE, according to a news release.
"Anupgraded options platform is a natural fit for us," Idzik said on thecall. "While we have invested much in our options capability, our offeringis not the sharpest instrument in our drawer, and we have seen it as acompetitive gap."
TheCEO also announced that Aperture Group LLC CEO Michael Curcio will assume asenior role at the combined company after the deal closes.
Discussingthe financial aspect of the transaction, E*TRADE Executive Vice President andCFO Mike Pizzi said the company is expecting total synergies of $65 million, ofwhich $16 million will be from revenues related to cash optimization and $49million will come from expenses related to cuts within the two companies.
Pizzisaid the transaction would deliver approximately $29 million more in expensecut by 2018 from the termination of OptionsHouse's third-party clearingcontract and from redundancies, including corporate overlap, digital,operations and marketing from both companies. serves asOptionsHouse's clearing broker, according to OptionsHouse's website.
Thetransaction is expected to lower E*TRADE's planned investment spend as it wouldeliminate the need for the company to develop its internal functionality,according to Pizzi. This will give E*TRADE with about $20 million of benefitfrom cost avoidance over about three years, he added.
Pizzialso said there will be one-time deal-related costs of approximately $45million incurred over two years and $7 million incurred at close.