Charles Schwab and TD Ameritrade used one word that should make employees nervous
- Charles Schwab agreed to purchase rival brokerage TD Ameritrade for $26 billion, the two firms announced on Monday.
- The companies used one word in their press release that should make employees nervous: synergies.
- The word synergies is typically used to describe areas of a combined business that have been identified as having redundancies or opportunities to cut costs.
- That can result in employees losing their jobs as the combined entity looks to eliminate duplicate roles.
- Watch Charles Schwab and TD Ameritrade trade live on Markets Insider.
In a deal that will reshape the brokerage landscape, Charles Schwab has agreed to buy TD Ameritrade for $26 billion, the companies announced on Monday.
The brokerage giants used one word in their press release that should make employees nervous: synergies.
"Focusing on expenses, current estimates are for approximately $1.8 to $2 billion run-rate expense synergies, which represents approximately 18-20% of the combined cost base," the release said. "Some of the expense synergies the combined firm expects to realize will come from elimination of overlapping and duplicative roles."
Synergies are typically considered areas that investment bankers or deal advisers have identified as having redundancies or opportunities to cut costs for the combined company. That often materializes as lay offs in segments of the new business that might have multiple people fulfilling the same job.
Cost savings can also come in the form of cutting redundancies in software programs or other functions that both companies use.
"Additional synergies are expected to be achieved through real estate, administrative and other savings." the release said.
As part of the deal, the new company's corporate headquarters will eventually relocate to Schwab's new facility in Westlake, Texas.
The companies added that more details about those cost savings initiatives will be divulged at a later date after the integration process has started.
The $26 billion takeover is an all-stock deal, with TD Ameritrade shareholders receiving 1.037 shares of Schwab for each TD Ameritrade share. That figure represents a 17% premium to TD Ameritrade's 30-day volume weighted moving average price exchange ratio as of November 20, the release said.