TD Ameritrade Shareholder Sues to Stop Merger with Schwab

19 Mar    Investing News

A TD Ameritrade Holding Corp. shareholder on Wednesday filed a putative class-action lawsuit attempting to derail the discount brokerage firm’s acquisition by Charles Schwab Corp.

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The suit, filed in U.S. District Court in Delaware, alleged that the companies’ March 2020 merger registration statement “omits material information” about the projected earnings and cashflows of the combined firm, violating federal securities laws by withholding proper disclosures.

It asks the court to temporarily and permanently enjoin completion of the merger, or rescind it if consummated, and to order corrections in the registration statement and an award of attorneys’ and expert witness fees and costs.

Such suits have become common in proposed mergers, with at least four being filed last year in an abortive attempt to halt Advisor Group’s takeover of Ladenburg Thalmann Financial Services. If courts don’t dismiss the claims in what have become known as “moot suits,” plaintiffs often agree to dismiss them if some document modifications are made and attorneys’ fee agreements are reached, according to a blog from Kevin LaCroix, a directors and officers’ insurance lawyer at Ohio-based RT Specialty.

The litigation to halt the Schwab-TD deal was orchestrated by Richard Maniskas, a Berwyn Pa. lawyer, on behalf of named plaintiff Michael Kent and “hundreds, if not thousands” of other TD Ameritrade shareholders, according to the lawsuit, which also names TD Ameritrade’s board members as defendants.

Neither Maniskas, nor Delaware-based lawyers Brian Long and Gina Serra who filed the suit—with Maniskas listed as “of counsel”—replied to written and oral requests for comment.

TD Ameritrade spokesman Joseph Giannone said the firm as a matter of policy does not comment on litigation. Charles Schwab spokesman Glen Mathison also declined to comment.

The issue pressing harder against the proposed all-stock mega-merger is the coronavirus crisis that has slowed down government review of the transaction and the market collapse that has pummeled the value of shares of both companies.

Schwab and TD Ameritrade disclosed in January that the Department of Justice had filed a second request for data to help it analyze the proposed deal, a time-consuming process even before the work-routine disruptions at the firms and the regulator caused by the coronavirus crisis.

When the deal was announced on November 25, Schwab said it would exchange 1.0837 of its shares for every TD Ameritrade share, valuing the target at $26 billion. Schwab shares, which were trading at $49.31 at the time, were changing hands on Thursday afternoon about 35% lower at $32.30, while TD Ameritrade’s were off about 39% at $31.68.

The firms have not changed their expectations that the deal will close in the second half of this year, their spokesmen said.

A New York judge in January dismissed a lawsuit seeking to block the merger that was filed by Franklin Tsung, an individual shareholder and registered investment advisor. Tsung’s father founded a firm whose customer relationship management software TD Ameritrade offers to its RIA custody clients.

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