CIBC sweet­ens bid for U.S. bank

National Post (National Edition) - - FINANCIAL POST - AR­MINA LI­GAYA

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.

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