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U.S. hedge funds step up pressure on Ameritrade

Date: Friday, June 29, 2007
Author: Rita Trichur, Toronto Star

Claim TD is wielding minor stake to influence sale

The Toronto Dominion Bank's top executive shrugged off criticism yesterday by two U.S. hedge funds that he and his management team were using the bank's minority stake in TD Ameritrade Holding Corp. to scuttle takeover talks for the online broker.

Ed Clark, president and chief executive of parent company TD Bank Financial Group, said he was "highly confident" that TD Ameritrade's board was managing the company in the interest of all shareholders. TD Bank owns about 40 per cent of TD Ameritrade.

"I am not going to get drawn in to people making up allegations that have no basis in fact," Clark told reporters following a presentation on the bank's U.S. operations.

"This is a game that they play. They have an interest in short-term performance of the stocks, so they can get in and out."

Jana Partners and S.A.C. Capital Advisors LLC which collectively control about 8.4 per cent of TD Ameritrade have been pushing the Omaha, Neb.-based brokerage to merge with either E-Trade Financial Corp. or Charles Schwab Corp. Officials of those companies could not be reached for comment.

The activist hedge funds stepped up their campaign yesterday with a letter to the company saying that TD Bank directors serving on TD Ameritrade's board should be prevented from "playing a significant role in such discussions."

The letter specified "the board must remove Mr. Clark from this role and empower the independent directors to reach out and lead discussions with potential strategic partners."

The funds also demanded access to records relating to the board's exploration of possible strategic combinations, including TD Bank's influence on the process.

A spokesperson for TD Ameritrade acknowledged receipt of the letter but declined further comment.

The controversy appeared to intensify as TD Bank announced plans for its wholly owned U.S. banking division to snag a greater share of consumer, small business and commercial deposits in that cutthroat market by as much as $10 billion (U.S.) over the next five years.

That aggressive goal comes months after TD Banknorth slashed jobs and closed branches in an effort to contain costs in a "tough" U.S. banking environment. Its overall goal is to chop operating expenses by $50 million to $80 million, while increasing earnings by 7 per cent to 10 per cent.

"The environment continues to be hugely challenging," said Bharat Masrani, Banknorth's new CEO, adding competition for deposits and loans remains intense.

The Portland, Me.-based bank has completed 27 mergers over the past 12 years but says any new acquisitions are on the back burner.