Schwab will pay approximately 1.0837 Schwab shares for each TD Ameritrade share. The deal represents a 17 percent premium to Ameritrade's 30-day volume weighted average price. TD Shareholders will own about 13 percent of the combined company once the deal is complete.
The deal, which was first reported by FOX Business' Maria Bartiromo on Thursday, will create a financial-services behemoth with $5 trillion in assets under management, allowing Schwab to better compete with the likes of BlackRock. The firms generate a combined $17 billion of annual revenue and $8 billion of annual pre-tax profit.
The deal is expected to be 10 percent to 15 percent accretive to earnings and 15 percent to 20 percent accretive to operating cash earnings per share in year three.
"With this transaction, we will capitalize on the unique opportunity to build a firm with the soul of a challenger and the resources of a large financial services institution that will be uniquely positioned to serve the investment, trading and wealth management needs of investors across every phase of their financial journeys,” Charles Schwab President and CEO Walt Bettinger said in a statement.
TD Ameritrade Chief Financial Officer Stephen Boyle will act as the interim president and CEO, helping the company with its fiscal year 2020 plan and integration with Schwab. Boyle will assume leadership effective immediately.
Following the close of the deal, TD Bank will have the opportunity to name two board members and TD Ameritrade will name a director.
The combined company's headquarters will be located in Westlake, Texas.
Outgoing TD Ameritrade CEO Tim Hockey previously acknowledged his firm's decision to adopt zero commissions -- as Schwab and rivals E-Trade and Fidelity have done -- would prompt speculation about mergers.
"We will take a look at anything that makes financial and strategic sense," he said last month, outlining the company's plans to make up for lost revenue of as much as $240 million a quarter from the new commission structure. "Scale is important. We have scale. We're very comfortable with our earnings power now, even in this new environment."
Schwab said in October that eliminating its $4.95-per-trade commission would trim quarterly revenue by $90 million to $100 million, or about 3 percent to 4 percent of the total.