Charles Schwab-TD Ameritrade Merger Hit by Eight Lawsuits

The complaints allege, among other things, that Ameritrade and Schwab boards filed misleading registration statements.

Boards of Charles Schwab and rival TD Ameritrade have invited their respective shareholders to agree on the all-stock merger that was valued at $26 billion despite many lawsuits challenging the deal.

Now that the discount brokers are taking their final steps towards integration, the mega deal is not going on without its critics. According to almost identical disclosures filed by each firm, eight complaints have been filed by purported TD Ameritrade stockholders in federal court seeking to halt the combination with Schwab.

Six of these complaints name TD Ameritrade board of directors as defendants while two other actions are suing Schwab managers. The complaints generally allege, among other things, that the defendants filed materially incomplete and misleading registration statements.

In addition to costs and attorneys’ fees, the lawsuits seek to hinder the vote of TD Ameritrade stockholders on the merger or entirely set aside the merging of the two biggest publicly traded brokers. Both TD Ameritrade and Schwab, however, believe that the claims asserted in the lawsuits are without merit and added that some plaintiffs have already agreed to dismiss their claims “with prejudice.”

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“TD Ameritrade and Schwab believe that no further disclosure is required to supplement the definitive joint proxy statement/prospectus under applicable law. However, to avoid the risk that the lawsuits may delay or otherwise adversely affect the consummation of the merger and to minimize the expense and distraction of defending such actions”, the supplemental disclosures explain.

TD Ameritrade revenue increase despite zero fees

Earlier in January, the proposed takeover was hit with an antitrust as some investment advisors voiced concerns the deal would reduce competition and innovation among the companies that serve as custodians to independent advisors. The lawsuit claims the planned merger would also amplify concentration in a business already dominated by only four companies.

A TD Ameritrade shareholder in March filed a class-action lawsuit attempting to derail the discount brokerage firm’s acquisition by the fellow financial advisory giant.

However, TD Ameritrade board said last month it continues to work on the planned merger with Charles Schwab, as the brokerage announced its second quarter earnings. Ameritrade earned $446 million, down from $499 million in the same quarter a year ago. Adjusted earnings for the quarter were $0.86 per share, down from $0.93 per share last year.

Revenues, though, grew 2 percent from a year earlier to $1.48 billion even as it slashed its trading commissions to zero. TD Ameritrade stock has dropped 25 percent year-to-date but most of the decline came weeks after the commission change was announced.