JANA and SAC Capital, which according to filings control about 8.4 percent of TD Ameritrade shares, said Friday that the brokerage should not delay in pursuing a merger.
"Quite frankly, we fail to see how an unbiased review could leave any doubt that the 'right time' to pursue such a combination is now," the funds said in a statement.
The hedge funds repeated their prior statements that Canada's Toronto-Dominion Bank, which has a 40 percent stake in TD Ameritrade, is interfering with merger talks.
Toronto-Dominion's interests are not fully aligned with other shareholders, the funds said. The Canadian bank wants to use TD Ameritrade to grow in the United States, and does not want a combination to change its favorable accounting treatment for its stake in the brokerage, the funds said.
A spokesman for TD Bank said its interests are no different from those of other shareholders.
Fox-Pitt, Kelton Group analyst David Trone said although TD Bank cannot technically block a deal because it controls five of the 12 seats on the board, "they would only need to convert one of the remaining seven to vote against a merger."
Three seats each are held by independent directors and people designated by Ameritrade founder Joe Ricketts, whose family has a 21 percent stake in TD Ameritrade, while TD Ameritrade CEO Moglia holds the remaining seat.
Even if the non-TD Bank directors vote in favor of a deal, Trone said Moglia's vote would be the crucial factor.
"Assuming the 'self-interest' theory, Moglia may only vote for the deal if he is named CEO and the TD Bank position is meaningfully diluted," he wrote in a research note.
"In any event ... the activists are right in the practical context, as it would be a long shot to get all seven non-TD directors to vote 'yes' to a merger," he wrote.
The funds said in their letter on Friday that they will soon send a request under Delaware law for documents related to any merger discussions and analysis that TD Ameritrade's board has engaged in.
In 2005, Ameritrade Holding Corp. rejected a takeover bid from E*Trade, choosing to acquire TD Waterhouse from TD Bank instead.
Merger Talk Not New
In April, many analysts and executives predicted another round of mergers in the industry after several discount brokerages lowered their full-year forecasts due to lower trade volumes, as retail investors exited from the stock market.
Bank of America Securities analyst Michael Hecht said in a research note that consolidation may not always be the path to huge earnings gains, especially if online brokerages don't evolve their business toward asset gathering and serving the long-term investor.
But he acknowledged that brokerages "may ultimately head down this path as they face challenges growing in a fairly limited universe given lack of product breadth, a business model predicated on low-cost service and a simplified product offering in a highly commoditized area of the market."
Since then, TD Ameritrade had publicly stated it was interested in growing through a merger if the time was right and it could reach an agreement for the right strategic fit.
It said in its regulatory filing that it had formed a standing mergers and acquisitions committee to evaluate and review strategic investments and mergers.