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Charles Schwab is buying TD Ameritrade for $26 billion, and the deal could be announced as soon as today, according to a report by Fox Business.

Ameritrade stock (ticker: AMTD), which is down on the year, was trading 23% higher in premarket action. Schwab (SCHW) was up 11%. E*Trade Financial (ETFC)—the smallest player in the group—fell 4%. A merger between its two most direct rivals could leave that company at a substantial competitive disadvantage.

The move doesn’t come as a major surprise. Deals were expected in the industry, because the business model for discount brokers has fallen apart this year.

The major brokers have dropped stock- and ETF-trading fees to zero. And low interest rates have hurt results, because the brokers depend on earning interest from their clients’ deposits. Schwab makes most of its money from interest income. TD Ameritrade makes a higher proportion of its revenue from fees, and was considered a potential acquisition target. “We will take a look at anything that makes financial and strategic sense,” Ameritrade CEO Tim Hockey told analysts last month.

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Merging gives the companies more scale, so they can earn fees from a higher asset base. Barron’s pointed out in a recent cover story that Schwab could be a winner in the shakeout. It added 142,000 clients last month after eliminating commissions, a 31% jump from the previous month.

One analyst likes the deal, even if Schwab is paying a high price.

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“A Schwab for Ameritrade deal would likely be solidly accretive for Schwab even if it offered a substantial premium,” Wells Fargo analyst Christopher Harris wrote in response to the news. “That is because of Schwab’s higher equity value (2021E P/E ratio of 16.4x for Schwab vs 13.5x for Ameritrade) and the potential for meaningful expense synergies.” He estimates the deal could result in “expense synergies” as high as 50%—likely meaning major cost cuts and layoffs at the combined company.

The biggest potential complicating factor to a Schwab-Ameritrade deal is TD Bank’s 43% stake in Ameritrade. TD Bank has a banking agreement with Ameritrade through 2021 that would likely have to be dissolved to make the economics attractive to Schwab. “Without the TD Bank agreement in place, SCHW could earn substantially better economics on AMTD’s customer cash balances,” Harris noted.

Neither company immediately responded to requests for comment.

Corrections & Amplifications

An earlier version of this article gave the wrong name for Ameritrade’s CEO. He is Tim Hockey.

Write to Avi Salzman at avi.salzman@barrons.com