After sale if its U.S. Trust subsidiary to Bank of America for $3.3 billion, Charles Schwab Corporation has decided to distribute even more than the proceeds of that sale to its shareholders by buying back shares and paying a special dividend.
Under the plan, San Francisco-based Schwab will pay up to $22.50 per share for 84 million shares of its own stock — 10 percent above the previous closing price. It will guarantee selling stockholders at least $19.50 per share, and also purchase up to 18 million additional shares from its founder. Charles Schwab will himslef receive over $400 million and will maintain his stake at its current level of 18%, which would be valued at over $4.5 billion.
The auction, which covers about 7 percent of Schwab’s outstanding shares has already begun and is to be completed by July 31. In addition to $2.3 billion to buy the stock, in August Schwab will also pay $1.2 billion to shareholders through a $1 per share special dividend.
The U.S. Trust sale caused speculation that Schwab may buy one or more of its online competitors, such as E-Trade Financial Corp. or TD Ameritrade Holding Corp. Schwab repeatedly said it was not interested in any such takeover. Some of the speculation came from those wanting their shares in the other companies to be purchased. Two hedge funds publicly urged TD Ameritrade to seek a sale to E-Trade or Schwab.
Schwab’s chief financial officer said “We have conducted a thorough review of alternatives for deploying both the proceeds from the sale of U.S. Trust and our other available financial resources, and we believe this plan is an efficient means of achieving an appropriate level and mix of capital for Schwab.”
Since Charles Schwab again assumed control of the firm three years ago, his shares and the other shareholders have tripled in value. The company lowered its commissions, stepped-up its “no-nonsense” investment advice and earned a record $1.2 billion last year.
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