CIBC's PrivateBancorp Bid Gap Widens on Investor Skepticism

(Bloomberg) -- Investors are betting that Canadian Imperial Bank of Commerce's bid to buy PrivateBancorp will fail unless the bank raises its $4.16 billion offer for the Chicago-based lender.

CIBC's cash and stock offer is valued at $51.43 a share, about 10 percent lower than PrivateBancorp's price of $57.23 in Monday trading. The discount reached its widest on March 2, when CIBC's friendly offer was almost 12 percent below the Chicago-based bank's share price, according to data compiled by Bloomberg.

“I think they'll try sweetening the bid, maybe in the high $50s and we'll see if that's enough,”' said Steve Belisle, a portfolio manager at Manulife Asset Management in Montreal, who oversees about C$3 billion ($2.2 billion) including CIBC stock. “They have to pay more, which makes the deal more dilutive, but PrivateBancorp's earnings outlook has been improving."

The bid gap narrowed Monday after PrivateBancorp set a new date of May 4 for its shareholders to vote on CIBC's offer. The bank postponed its Dec. 8 vote after proxy-advisory firms and some investors called the offer insufficient following a post-election rally of U.S. bank shares. That new date could increase the urgency to reach a new agreement, according to analysts including John Aiken of Barclays Plc.

‘Shortened Timeline'

“The shortened timeline could bring added pressure to the deal's closing, in multiple forms, including potentially a higher share price offering,” Aiken said Monday in a note to clients.

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 $20.1 billion in assets, serves largely middle-market companies, business owners and wealthy families.

CIBC's offer is for $18.80 in cash and 0.3657 of a CIBC common share for each PrivateBancorp share, valuing the bid at $3.8 billion on the June 29 announcement. That would make it Toronto-based CIBC's largest deal ever. The gap between the current price and offer is the sixth-widest of 137 North American deals tracked by Bloomberg. CIBC shares rose 0.5 percent to C$119.78 at 12:05 p.m. in Toronto.

“Our estimates reflect the view that CIBC will complete the PrivateBancorp acquisition at a price of $62 per share, with a ‘top up' from the original bid conducted with 100 percent cash," Sumit Malhotra, a Scotia Capital analyst, said in an interview. “CIBC has the capital flexibility to increase its offer, and we believe the strategic merit in adding a more meaningful U.S. presence to what is the most Canadian of the Canadian banks remains important.”

CIBC Chief Executive Officer Victor Dodig said in a Feb. 23 earnings conference call that PrivateBancorp “is a better bank under CIBC's ownership,” but stressed that CIBC will be disciplined in pursuing the transaction. The Canadian bank may become more active in buying back stock if unable to complete the deal, he said.

To contact the reporter on this story: Doug Alexander in Toronto at dalexander3@bloomberg.net.

To contact the editors responsible for this story: David Scanlan at dscanlan@bloomberg.net, Peter Eichenbaum at peichenbaum@bloomberg.net, Jacqueline Thorpe