Report: Failed Capital One Deal Behind Citadel's Attack On E*Trade

Aug 2 2011 | 12:32pm ET

An abortive deal to sell itself to Capital One Financial may have turned Citadel Investment Group from E*Trade Financial's most steadfast supporter into an enemy the troubled online brokerage cannot afford to have.

Citadel founder Kenneth Griffin, who sits on E*Trade's board of directors following two bailouts of the company by the hedge fund, was angered when Capital One's initial approach last fall failed to produce an actual bid for E*Trade. Griffin felt that a possible deal with Capital One hadn't been properly evaluated by the board, The Wall Street Journal reports.

In recent weeks, Citadel has gone from being publicly supportive to publicly excoriating E*Trade and its board. The hedge fund last month demanded a slew of changes at the firm and an emergency shareholder meeting; E*Trade has refused to call one, although Citadel, which owns 9.8% of the E*Trade, appears to have the votes to force one.

In its approach to E*Trade, Capital One didn't hire an investment bank, but E*Trade did, or, rather, already had. The firm asked JPMorgan Chase to advise it on Capital One's approach in addition to performing a strategic review.

The two sides never talked about a possible price, and E*Trade did not seek a potential counter-offer.


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