(Bloomberg) -- Canadian Imperial Bank of Commerce increased its offer for PrivateBancorp Inc. by $3 a share in cash to offset the decline in the bidder's stock price.
The new agreement would pay investors of Chicago-based PrivateBancorp $27.20 in cash and 0.4176 of a CIBC share for each of their shares, according to a joint statement Thursday by the companies. Based on Wednesday's CIBC closing price, the deal would be valued at about $4.9 billion, or $60.43 a share, a 26 percent increase over the terms announced in June.
CIBC, which is seeking expansion in the U.S., needed to boost its offer because PrivateBancorp shareholders have wondered if their company would be better off remaining independent. The revised bid means that the cash portion will amount to about 45 percent of the bid price, or $2.2 billion, the Toronto-based lender said, adding that amended terms were the bank's “best and final offer.”
While it doesn't look good that CIBC had to bump its bid more than once, ultimately the deal makes sense, according to Ian Nakamoto, an equity specialist with Raymond James Ltd.
"Strategically, I think it is a good move to go into the USA, and the financial company they chose to acquire seems a good one," Nakamoto said in an emailed statement.
PrivateBancorp shares climbed 4.2 percent to $59.98 at 9:33 a.m. in New York, while CIBC's were little changed at C$108.87 in Toronto.
ISS Recomendation
The decision comes after proxy advisory firm Institutional Shareholder Services Inc. recommended last month that PrivateBancorp investors vote down the deal based in part on the decline in the shares of CIBC and other Canadian financial institutions following the troubles of embattled alternative mortgage lender Home Capital Group.
The new terms also allow PrivateBancorp's shareholders to participate in the next quarterly dividend paid by CIBC. The company's last payout was C$1.27 (93 cents) a share. Based on that value, the dividend would add about 39 cents for each PrivateBancorp share after the deal is completed.
The companies said they expect the transaction to be completed in June, and be accretive to earnings per share within three years. PrivateBancorp shareholders are scheduled to vote on the offer at a special meeting May 12.
“This does materially increase the likelihood of success, particularly with the added benefit of potentially delaying its quarterly dividend payment to ensure that PrivateBancorp shareholders receive their first CIBC dividend right off the bat," John Aiken, a Toronto-based analysts at Barclays Plc, said in a note to clients.
CIBC initially offered to buy PrivateBancorp in June for about $3.96 billion in cash and stock, but the U.S. firm delayed a Dec. 8 shareholder vote after its share price climbed along with other U.S. financial companies following Donald Trump's election. The Canadian lender raised its offer by about 20 percent in March after some investors and proxy advisory firms called the bid inadequate.
CIBC, Canada's fifth-largest lender by assets, is pursuing the takeover to expand its commercial and private-banking business in the U.S. and leverage its wealth-management platform in the country. PrivateBancorp, with about $20 billion in assets, serves mostly middle-market companies, business owners and wealthy families.
--With assistance from Katherine Chiglinsky
To contact the reporters on this story: Scott Deveau in Toronto at sdeveau2@bloomberg.net, Doug Alexander in Toronto at dalexander3@bloomberg.net.
To contact the editors responsible for this story: Peter Eichenbaum at peichenbaum@bloomberg.net, Steven Crabill, Dan Kraut
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