TD AMERITRADE (NASDAQ: AMTD) disclosed that hedge funds Jana Partners and SAC Capital delivered a letter to the board of directors indicating they wish to see TD AMERITRADE pursue a business combination with one of its industry peers, E*Trade Financial (Nasdaq: ETFC) or Charles Schwab (Nasdaq: SCHW). The funds believe that TD Ameritrade can dramatically increase long-term shareholder value through a combination.

Following the great hedge funds such as Baupost, Greenlight, Tiger, and Okumus has led to high historical returns. A tracking portfolio of the top funds is up over 11% YTD.

E-Trade is in denial about the impacts the Bank of America free online trading offer will have. SINLetter decides to pull the plug on their TD Ameritrade investment and details his rationale. (I can almost see the invaders climbing the walls of this castle that has no moat.)