Home Capital woes hurt CIBC takeover bid

PrivateBancorp deal hits headwinds

TORONTO • Home Capital Group’s troubles are jeopardizing $5-billion takeover of

with a shareholder advisory firm urging investors to oppose the deal, citing the impact of the embattled alternativemortgage lender as one of the reasons.

CIBC, along with the other four big banks, has seen its stock price fall in recent weeks, in part because of the run on deposits at Home Capital, Institutional Shareholder Services Inc. said in a report.

“While further contagion is not certain, Home Capital’s predicament is not an encouraging sign of the health of the Canadian housing market and the country’s broader financial sector,” ISS wrote.

PrivateBancorp would be better off as an independent firm, ISS said. “The standalone company’s earning power appears to be growing strongly, partly from the favourable macro backdrop of a growing economy and rising interest rates,” according to the report. “Potential reductions in taxes and regulations provide optionality to shareholders and could result in increased earnings, higher returns on equity and a higher stock price.”

“We strongly believe that ISS reached the wrong conclusion,” bank spokeswoman Caroline Van Hasselt said Monday in a statement. “A merger between CIBC and PrivateBancorp is a compelling opportunity that strengthens PrivateBancorp and offers immediate and long-term value for both companies’ shareholders,” she said.

PrivateBancorp is “confident” the CIBC offer is in its shareholders’ best interest and its board “unanimously recommends that stockholders vote for the transaction,” the company said in an emailed statement.

CIBC offered to acquire PrivateBancorp in June but delayed a Dec. 8 shareholder vote on the matter after the Chicago-based lender’s share price climbed along with other U.S. financial institutions following Donald Trump’s election as president. CIBC sweetened its offer in March by about 20 per cent. Under the new terms, CIBC would pay US$24.20 in cash and 0.4176 share of its own stock for each PrivateBancorp share, valued at about US$60.92 per share when the plan was announced on March 30.

“But in the month since the announcement of the revised terms, evolving market conditions yet again have eroded the premium,” ISS said in the note, noting the value of the offer was US$57.86 on April 27 due to the decline in CIBC’s share price in recent weeks. PrivateBancorp shareholders are scheduled to vote on the offer May 12.

ISS’s conclusion is at odds with another shareholder advisory firm, Glass, Lewis & Co., which recommended last week that PrivateBancorp’s investors approve the transaction. The firm said it based its conclusion on updated fairness opinions and a review of comparable deals. An advisory firm says PrivateBancorp shareholders should reject CIBC’s takeover offer.