Days after its largest shareholder demanded E-Trade Financial Corp. let shareholders consider proposals including the hiring of new financial advisers to explore options such as selling the company, the online brokerage said Friday that it is bringing in Morgan Stanley & Co. to review its strategic opportunities.
In a Wednesday letter to E-Trade that was disclosed in a regulatory filing, hedge fund Citadel LLC said that mismanagement by the company's board and executives caused it to lose money every year since 2006, extinguishing shareholder value and wasting growth opportunities. Citadel demanded the company hold a special shareholder meeting to consider proposals to remove directors Michael Parks and Donna Weaver, change how it elects directors and explore strategic alternatives, including selling the company.
E-Trade said Friday that it created a special board committee composed of independent directors that instructed the company hire Morgan Stanley & Co. to perform a strategic alternatives review. Morgan Stanley will share its findings with the board's finance and risk oversight committee, whose members include Citadel founder and CEO Kenneth Griffin, and that committee will give E-Trade's board a recommendation, the company said.
E-Trade pointed out that the company hired J.P. Morgan Securities LLC to go over its strategic alternatives in the fourth quarter of last year. After this review, the board decided that selling the company then would not increase shareholder value, E-Trade said.
In a statement, E-Trade said it feels it "has already addressed the substance of Citadel's proposals," and that it is not in its shareholders' best interest to hold a special meeting. The company also said called Citadel's proposal to consider removing two directors "inappropriate" and said it violates the law in Delaware, where E-Trade was incorporated.
Citadel, which rescued the online brokerage four years earlier with a $2.5 billion investment, currently owns about 9.8 percent of E-Trade's common shares _ about half the amount it owned at the beginning of the year. In April, it sold 27.5 million shares and converted separate investments into 31.4 million new shares.
E-Trade shares rose 67 cents, or 4.3 percent, to $16.31 in extended trading. The stock finished regular trading up 20 cents at $15.64.