Citadel LLC, the biggest shareholder of E*Trade Financial Corp., said the online brokerage’s decision to hire Morgan Stanley isn’t sufficient in addressing plans for a strategic review and called again for a special meeting.
E*Trade’s plan to have Morgan Stanley report to the board’s Finance and Risk Oversight Committee is “manifestly inappropriate” because most members are part of the company management or legacy directors, who “have failed” shareholders in the past, according to a July 22 regulatory filing received today. Ken Griffin’s Chicago-based hedge fund is also calling for two directors, Michael Parks and Donna Weaver, to be removed.
“Once again, E*Trade’s board has failed to act in shareholders’ best interests,” Citadel wrote in a letter to the brokerage today. “Your response to our July 20 letter further demonstrates the board’s entrenchment and the lengths to which members of the board will go to maintain the status quo to the detriment of shareholders.”
In a letter last week, Citadel called on the company to perform a review of strategic alternatives, including a sale of the company. The online brokerage, whose shares have fallen 94 percent in four years, responded to its request to address those “catastrophic losses” by deciding to retain Morgan Stanley, after saying that JPMorgan Chase & Co. completed a strategic review in 2010. The company, which has counted Griffin as a board member since June 2009, said it wouldn’t call a meeting.
“Requests from Citadel come from one who is likely knowledgeable of these issues,” Richard Repetto, a New York-based analyst with Sandler O’Neill & Partners LP, wrote in a note today, referring to Griffin. “Clearly we can deduce he was dissatisfied with JPMorgan’s work in asking for a second investment banking review as well as with Michael Parks, who chairs the FROC and who Citadel has asked to be removed from the board.”
E*Trade shares climbed 5.6 percent to $16.52 at 4 p.m. in New York today. Last week, they surged 21 percent, the biggest weekly gain since June 2009, after Citadel’s first letter.
Citadel asked today for a special meeting to be held no sooner than 10 days and no later than 60 days after E*Trade receives notice from holders of 10 percent of the company. At the meeting, shareholders would vote on removing some board members and hiring an investment bank to help arrange a sale. E*Trade would be required to call a meeting once investors owning 10 percent of the company request one. Citadel owns about 9.8 percent of the New York-based company.
“Given Citadel’s 9.8 percent ownership stake and the likely participation of other owners, it will be possible for them to call a special meeting of shareholders,” Chris Allen, a New York-based analyst with Evercore Partners Inc., wrote in a note today.
Charles Schwab Corp., the biggest independent U.S. brokerage by assets, and TD Ameritrade Holding Corp., the third largest, are the most likely buyers, according to Sandler O’Neill’s Repetto and Patrick O’Shaughnessy, an analyst for Raymond James in Chicago. Directors of TD Ameritrade plan to hold a meeting tomorrow to discuss the possibility of buying E*Trade, the Wall Street Journal said, citing people familiar with the matter.
“It has long been our practice to not comment on any rumor or speculation in the marketplace,” said Kim Hillyer, a spokeswoman for TD Ameritrade. “Our board of directors is meeting this week for their regularly scheduled quarterly meeting. Strategic matters are discussed by the board on a regular basis, but it would be inappropriate for me to comment further on specific topics -- hypothetical or otherwise.”
Greg Gable, a spokesman for San Francisco-based Charles Schwab, declined to comment Friday on deal speculation regarding E*Trade.