Monday, June 06, 2005

ETrade boosts Ameritrade bid - report - Electronic commerce - Internet - M&A

ETrade boosts Ameritrade bid - report - Electronic commerce - Internet - M&A

Another big win for my family. Our original purchase of AMTD was made in October of 2002 and we tripled up several weeks ago. We were patient after the first take-over bid by ETrade. Now we must evaluate where we are.

Many things could happen from here. AMTD is in negotiations to buy TD Waterhouse. The increased bid by ET has to at least temp the owners. The arguments go two ways. The talking heads this morning said, "Why should AMTD lose control if the deal lowest costs and increases profits either way?" The answer is the extra money up front. ET just increased its bid by about a billion dollars with 500 million of the new dollars in cash. One can just as easily say, "Why over-pay to take on the challenge of integrating TD Waterhouse when you can make so much by selling to ETrade. By all accounts, the ET AMTD combination would be synergistic.

If we had long-term gains on our second purchase, it would simplify our decision. AMTD has appreciated dramatically versus ET in recent months. My family owns a smaller stake in ET. If the second position were long-term, we would probably swap a portion of it into ET. The old saw about not letting the tax tail wage the dog is one to keep in mind but on the other hand if ET is going to be the successful bidder, the correct move is to do nothing. The current offer is worth maybe $18 or $19 per share. If it does not fall apart, it has been a good ride and our expectations are for continued growth in the surviving companies.

The house-hold employment data show that the economy is still very strong. This data has increased the probability of additional short-rate increases. Of course, this data came available right when the markets were hitting the top of an 18 month trading range. Oil traded up all week and is above $55 per barrel this morning. This mornings WSJ had a prominent article about how the recent move could be a rally within a secular bear market. The direction of bond yields call for a moderating economy and much higher stocks or a recession. Barring a terrorist attack, our reading is for the moderating economy. We are still BULLS but we can't be sure that the BULLS will crash through the fences without letting more of the herd catch up.

Last week we purchased FON in anticipation of wVoIP phone service heating up. Our AWA gave our accounts another nice boost. The sector investment cycle suggest that one should be buying consumer staples and health care issues. For the most part, we are staying with higher beta sectors.