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Heat turned up on TD Ameritrade

Hedge funds want to see records, say TD Bank's influence may hurt other shareholders

The brewing fight over the future of TD Ameritrade Holding Corp. escalated yesterday when two hedge funds said they will send the online brokerage a legal request for its corporate records relating to potential mergers and acquisitions.

That must include "any instances where Toronto-Dominion's interests have come into conflict with those of all other TD Ameritrade shareholders," said a letter that JANA Partners LLC and SAC Capital Advisors LLC sent to the TD Ameritrade board.

It added that they "find it astounding that the independent members of the board have not done more to cleanse the board's review of strategic combinations of influence by Toronto-Dominion."

TD Ameritrade disclosed this week the funds sent an initial letter on May 29, pushing it to merge with one of its rivals. That letter said the funds, which claimed an economic interest of 50 million shares or 8.4 per cent of TD Ameritrade, think the five board directors designated by Toronto-Dominion Bank are in a conflict of interest and may be blocking possible deals.

Yesterday, the funds ratcheted up the pressure by releasing the new letter publicly, along with a 21-page analysis outlining what they say would be the benefits of a merger with E*Trade Financial or Charles Schwab. A combination with E*Trade could reap at least $600-million (U.S.) in annual pretax synergies, while a deal with Charles Schwab could result in $800-million-plus, the funds say.

They also said TD Ameritrade has done nothing to allay conflict-of-interest concerns. "It is well known that Toronto-Dominion views its TD Ameritrade stake as a key strategic asset, rather than a pure investment," the letter said.

It referred to comments TD Bank CEO Ed Clark made recently that the bank benefits from TD Ameritrade's advertising, something the hedge funds said demonstrates "an eagerness to see TD Ameritrade resources squandered for Toronto-Dominion's benefit, which is highly troubling."

They say they are also troubled TD Ameritrade announced TD executive Fredric Tomczyk was leaving the bank to become chief operating officer of TD Ameritrade, "apparently as a successor-in-waiting to [TD Ameritrade CEO Joe] Moglia."

Mr. Tomczyk's contract says that if he's not appointed CEO after Mr. Moglia leaves, he's entitled to his $500,000 salary and a $1.1-million cash incentive for two years.

TD Ameritrade

Close: $20.93 (U.S.), up 93 cents

Toronto-Dominion Bank

Close: $72.94 (Cdn.), up 87 cents

© 2007 The Globe and Mail. All rights reserved.

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