Monday, May 09, 2005 - E*Trade Attempts To Lure Ameritrade Into Takeover Talks

Friday, I wrote to you about the action in ET and AMTD, I suggested that you should buy more of these stocks and I reported that my family doubled our position. I hope you reacted quickly. It looks like a good move so far. AMTD is trading up 2.40 per share before the opening and ET is trading up .90.

There is three way action here. AMTD has been trying to buy TD Waterhouse for some time. TD is owned by Toronto-Dominion Bank. The problem here is both companies want to run the combined company. Reports indicate that ET sent AMTD a "bear-hug" letter last week.

I don't recall the size of Charles Schwab (SCH) butET and AMTD are about the same size. My guess is that should they combine, they will approach the size of SCH. In the mergers done by AMTD over the past several years, the consolidations have been smooth and the savings have been substantial. Consumers have been the big winners as SCH, ET and AMTD in particular have offered lower commissions and more services.

Mr. Johnson (actually his daughter) has made Fidelity one of the fastest growing discount brokers. Fidelity is not publicly traded. Its method of growth has been to capture the 401-K business of large companies and then offer self-directed accounts to the participants. Unfortunately, the employees in these deals often pay higher fees for Fidelity Mutual Funds and higher commissions than they would pay for Exchange Traded Funds or commissions through AMTD or ET.

In other news, Duke Energy is buying out CINergy for a low price. I repeat my refrain of recent weeks--you should buy shares in companies before other companies by those shares; stocks are cheap! The reason companies keep buying other companies is that it is now cheaper to buy a company than it is to build a company. Marilyn and I have our personal home is for sale. We raised our offer price this week. The fact is that building costs in our area have gone up so much that it would cost almost $100,000 more than our asking price to build our house. Some folks will only buy a new house but there is value in an 8 year old house. Same thing with stocks, rather than chase IPO's one should buy solid values before they are taken over.

Buy the Big, Bull, Boom, Bubble--the Bust is several years away.