E*Trade Prescribes a Poison Pill

Online brokerage E*Trade(NYSE: ET) announced Thursday that its board of directors has approved a plan, known in Wall Street parlance as a poison pill, aimed at thwarting a hostile takeover attempt.

E*Trade said that its so-called shareholder rights plan is “designed to enhance the board’s ability to protect stockholders against, among other things, unsolicited attempts to acquire control of E*Trade that do not offer an adequate price to all stockholders or are otherwise not in the best interests of E*Trade and its stockholders.”

Menlo Park, California-based E*Trade asserted that the plan was “not adopted in response to any specific effort to acquire control of the company, and it is not aware of any such effort.” E*Trade also said that it would continue to consider “appropriate business combinations that would enhance shareowner value.”

The Prescription

E*Trade’s protection plan will entitle stockholders to buy from E*Trade Group .001 shares of a new series of participating preferred stock at an initial purchase price of US$50.

Under the plan, on July 17th, each eligible common stockholder will receive a dividend of one right to purchase for each share of common stock held.

Takeover Trigger

The shareholder rights plan is triggered if a person or group acquires beneficial ownership of 10 percent or more of E*Trade common stock. It is also triggered if a person or group begins a tender or exchange offer that allows it to beneficially own 10 percent or more of E*Trade common stock.

E*Trade said that the current holdings of Softbank, its largest shareholder, would not trigger any rights under the plan, unless Softbank and its affiliates acquire more than an additional 5 million shares of E*Trade common stock.

E*Trade’s poison pill is similar to one adopted by Yahoo! (Nasdaq: YHOO) in March.

Deals and Plans

Like the stock of other dot-coms, E*Trade shares have plummeted, closing at $6.17 on Thursday — barely 15 percent of their value two years ago. However, the company has been working to diversify and develop additional sources of revenue.

In May, the company announced it was acquiring rival online broker Web Street (Nasdaq: WEBS) for $45 million in stock. The purchase included all of Web Street’s 34,000 active accounts, as well as its branch offices in San Francisco and Beverly Hills, California; Boston, Massachusetts; and Denver, Colorado.

In January, the company acquired online mortgage company LoansDirect.com as a springboard for entering the consumer credit market. More recently, E*Trade opened a brick-and-mortar superstore in New York City, and announced plans to put more than 1,000 new automated teller machines and 20 additional customer service centers in Target stores across the country.

E*Trade has also been aggressively expanding its franchise internationally. In May, the broker launched E*Trade Israel, its first site in the Middle East. The company currently operates sites in 11 other countries, including Australia, Denmark and Japan.