E-Trade shares up as shareholder urges sale

NEW YORK — Shares of E-Trade Financial Corp. surged Monday after reports said that a larger rival was considering a bid for the online brokerage, just a few days after its largest shareholder urged E-Trade to consider putting itself up for sale.

THE SPARK: The Wall Street Journal reported Monday that TD Ameritrade is considering a bid for E-Trade, citing people familiar with the matter.

Ameritrade spokeswoman Kim Hillyer said Monday that the Omaha, Neb., company won't comment on rumors, and any deal would have to make both strategic and financial sense for shareholders.

Hillyer said Ameritrade's board is scheduled to hold a quarterly meeting on Tuesday, and the board regularly discusses the company's strategy.

Also Monday, hedge fund Citadel LLC renewed its call for E-Trade to call a special meeting to consider possibly selling the company and several proposed reforms. E-Trade, based in New York, said Friday that it would hire Morgan Stanley & Co. to review its strategic options.

THE BIG PICTURE: Citadel, which rescued the online brokerage four years earlier with a $2.5 billion investment, currently owns about 9.8 percent of E-Trade's common shares — about half the amount it owned at the beginning of the year. Citadel says E-Trade's executives have mismanaged the company.

THE ANALYSIS: Many investors believe TD Ameritrade would be a likely buyer for E-Trade. The two companies have talked about a merger in the past but have been unable to agree to terms, and in recent years, Ameritrade officials have said E-Trade had too much questionable debt on its balance sheet to be acquired. Credit Suisse analyst Howard Chen said in a research note last week that the timing may not be right for an E-Trade deal.

SHARE ACTION: E-Trade shares rose 87 cents, or 5.5 percent, to $16.51 in midday trading, while TD Ameritrade gained 95 cents, or 4.8 percent, to $20.56.