Schwab to buy optionsXpress in $1 bn stock deal

Charles Schwab Corp will buy US online brokerage optionsXpress Holdings Inc in a USD 1 billion deal that gives Schwab a stable of some of the most active retail traders in the booming options market.

The friendly all-stock takeover, announced on Monday, is a nod to the increased use of options contracts as a way to speculate and hedge -- a far more complicated and capital-intensive strategy for individuals than plain vanilla stock-trading.
The deal returns Schwab to the acquisition game after a quiet decade, and could help the big US brokerage hang on to the most sophisticated of its online trading clients.
"It really just lets us jump the curve a little bit in terms of helping these highly valuable clients," Schwab Chief Executive Walt Bettinger said on a conference call with analysts and the media.
The acquisition values optionsXpress at USD 17.91 per share, a 17% premium to its USD 15.33 closing price on Friday. OptionsXpress shares jumped 16.8% on Monday, while Schwab shares rose 0.5%.
US options trading volume has grown strongly in recent years, part of the reason Schwab's chief rival, TD Ameritrade Holding Corp, bought options specialist thinkorswim in 2009.
Ten-year-old optionsXpress also gives Schwab a leg up in fast-growing foreign exchange and futures trading, diversifying its online platform that now relies heavily on cash equities.
"Mainstream investors are expanding their view of asset classes, and the Schwab deal is a reflection of that," said Alois Pirker, director of research at Aite Group, a research firm specializing in brokerages and securities markets.
The prevalence of Web-based brokers, their investor education drives, as well as a move to electronic markets, have all helped ramp up trading in options -- which give contract holders the right to buy or sell an underlying security over an agreed time, or at a set date.
"They've created this new class of people and armed them with the right tools, so it is definitely much easier and much faster to become a higher-end, sophisticated retail options trader than it was five years ago," said Mark Longo, CEO of theoptionsinsider.com, an options information website.
Options traders have three times the assets and do six times the trades, compared to other clients, Schwab said. So far this year, average daily US options volume has jumped 21% from last year's record, according to the OCC, formerly the Options Clearing Corp.

Terms

Under the terms of the deal, which is expected to close in the third quarter, each share of Chicago-based optionsXpress would be swapped for 1.02 shares of Schwab. Schwab, also an asset manager, will issue 60 million shares in the agreement.
OptionsXpress had 379,000 client accounts and USD 7.9 billion in client assets at the end of last year; Schwab had nearly 8 million accounts and USD 1.6 trillion in assets.
Together, the pair logged 315,000 daily average revenue trades (DARTS) in the last quarter of 2010