CIBC sweetens bid for U.S. bank

TORONTO • Canadian Imperial Bank of Commerce has upped its bid to acquire Chicago-based PrivateBancorp Inc. by 20 per cent, reflecting soaring valuations of U.S. bank stocks since Donald Trump’s election.

Under the new amended agreement, PrivateBancorp stockholders would receive US$24.20 in cash and 0.4176 of a CIBC common share for each common share of PrivateBancorp, according to a joint statement by the two banks on Thursday.

Based upon Wednesday’s closing price of CIBC’s shares in New York (US$87.92), that works out to about US$60.92 per PrivateBancorp share.

The new deal values the U.S. bank at approximately US$4.9 billion — about 20-per-cent above the current market value of the original deal and 30-per-cent above the US$3.8-billion valuation at the time the offer was first announced in June.

The sweetened offer comes about a month before PrivateBancorp shareholders were due to vote on CIBC’s original bid announced on June 29 of US$18.80 in cash and 0.3657 of a CIBC common share, which worked out then to US$47 per share.

If successful, this would be CIBC’s largest acquisition ever.

John Aiken, an analyst with Barclays in Toronto, said the revised offer “gets it over the finish line for CIBC,” but warned investors may not like the cost.

“Admittedly, the environment has changed since CIBC initially announced its bid but the incremental bid gives a lot more of the economics to current PVTB shareholders, as evidenced by the anticipated accretion by 2020,” Aiken said in a note Thursday. “We do not expect a favourable response and believe that CIBC will only be able to recover the lost valuation after it demonstrates to the market the benefits of the transaction to the bottom line.”

Keefe Bruyette & Woods analyst Brian Klock said that CIBC raised 2020 earning expectations for PrivateBancorp by about 12.5 per cent as part of the renewed bid, but expressed some concern at the valuation.

“We are bit surprised that CIBC increased its offer to what is essentially a premium on the run-up in PVTB’s share price post the U.S. presidential election,” Klock wrote in a note. “Our belief is that this is CIBC’s ‘best and final’ offer for the bank.”

Christopher McGratty, the KBW analyst who covers PrivateBancorp, said the new offer still falls short of his assessment of PrivateBancorp’s value, and may fail to attract sufficient shareholder support.

“Bottom line, we’re not sure this is enough,” he said.

Although the U.S. bank stock rally had slowed in recent weeks, the risk of shares rising further remained, said James Shanahan, an analyst with Edward Jones.

“The longer they wait, it might be more expensive,” he said in an interview.