Customers Pull Suits Opposing Schwab Purchase of TD Ameritrade

Charles Schwab Corp. and TD Ameritrade Holding Corp. have sent shareholders additional information about the assumptions used for determining the value of their pending merger in return for the dismissal of eight federal lawsuits that threatened to delay the deal.

“TD Ameritrade and Schwab believe that no further disclosure is required to supplement the definitive joint proxy statement/prospectus under applicable law,” the discount brokerage giants said in similar filings with the Securities and Exchange Commission on Wednesday. “However, to avoid the risk that the lawsuits may delay or otherwise adversely affect the consummation of the merger and to minimize the expense and distraction of defending such actions, [TD Ameritrade/Charles Schwab] wishes to voluntarily make the supplemental disclosures….”

Executives of the online brokerage giants said in recent conference calls that they expect the merger to be completed this year, notwithstanding the lawsuits and an intensified antitrust review by the Department of Justice.

The lawsuits, filed in Delaware, New Jersey and New York over the past three months, contended that shareholders could not adequately value the fairness of Schwab’s $26 billion all-stock offer because of “materially false and misleading” financial projections in the registration statements, and also alleged omission of potential conflicts of interest involving PJT Partners and Piper Sandler, the banks that wrote fairness opinions.

The almost identical suits, which all named TD Ameritrade and its board as defendants and two of which include Schwab, fit the pattern of so-called “moot suits.” Plaintiffs in those suits agree to dismissals if 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.

This week’s filings from Schwab and TD Ameritrade did not address settlement terms, and said the supplemental disclosures were made “voluntarily.” The plaintiffs agreed to dismiss their claims with prejudice, meaning the cases are permanently withdrawn.

The firms’ filings did not address an additional suit filed on May 12 that challenges the merger on the grounds that TD Bank’s large holding in TD Ameritrade invalidates the deal under Delaware’s business combination laws.

If a court upheld the claim in the putative class action, which asserts that Schwab should have been considered an “interested stockholder” because of a pre-arrangement with the Canadian bank involving deposit account agreements, the merger would have to be delayed by three years unless sixty six-and-two-thirds of Schwab’s outside shareholders approve the deal, according to a separate regulatory filing Schwab made on Tuesday.

Each firm has scheduled special virtual shareholder meetings on June 4 to vote on the merger. The Delaware Court of Chancery agreed to expedited discovery motions on May 15 but declined to hold a hearing on delaying the special meeting, according to the Schwab filing.

The lawsuits that were dismissed include a putative class-action lawsuit and a suit filed by serial litigant Shiva Stein.

Separately, Schwab on Tuesday completed its acquisition of the assets of USAA’s “investment management” brokerage unit, which includes about 12 million customer accounts. Schwab paid $1.8 billion in cash for the USAA business.