Canadian Imperial Bank of Commerce's U.S. expansion plans got a shot in the arm Friday after shareholders of Chicago-based PrivateBancorp Inc. voted to approve a $4.9-billion (U.S.) takeover offer.
The deal, which has faced a number of hurdles in recent months, is expected to close in June – roughly one year after the proposed tie-up was first announced. The transaction, however, still needs to be approved by federal banking regulators in Canada and the United States.
CIBC had to overcome opposition from one shareholder advisory firm even after it sweetened its offer twice in five weeks. In the days leading up to Friday's vote, analysts said it was unclear whether the transaction would garner enough support to seal the deal. Observers say there is lingering concern that CIBC may have overpaid to clinch the deal.
Read more: With PrivateBancorp takeover, CIBC must work to make deal pay off
Soaring U.S. bank stocks, in the wake of the presidential election, made CIBC's initial $47-a-share offer seem insufficient to shore up support from PrivateBancorp's shareholders. CIBC has boosted its bid twice since March 30. By winning the approval from the bulk of PrivateBancorp's investors on Friday, CIBC has cleared a crucial hurdle in its push back into a lucrative – but also crowded – U.S. market.
Friday's vote gets CIBC closer to its long-sought goal of securing a growth platform south of the border. Canada's fifth-largest bank by assets has been musing about a major U.S. acquisition since at 2013. After more than a decade spent trying to lower its risk profile in the wake of the financial crisis, CIBC was looking for a new avenue for growth.
"The vote by the PrivateBancorp shareholders marks an important milestone in the process and we are very pleased with the outcome," Victor Dodig, chief executive officer at CIBC, said in a statement.
Should the deal close, CIBC would be gaining an all-star executive team to lead its U.S. efforts, which already include its private-wealth manager CIBC Atlantic Trust; a portfolio weighted toward commercial loans, which grow more lucrative in step with interest-rate hikes; and a footprint in the U.S. Midwest that stands to benefit in a strengthening economy.
"Today's vote reinforces our stockholders' support for the strategic opportunity a combination with CIBC offers," Larry Richman, the CEO of PrivateBancorp, said in a separate statement. "This will make our strong bank even stronger with the same commitment to building long-term client relationships, the same experienced team, and the same dedication to Chicago and all of the communities we serve."
CIBC agreed to acquire PrivateBancorp for $3.8-billion in stock and cash last June, ending months of speculation over how it planned to diversify outside of Canada. PrivateBancorp conducts business in 36 offices across 13 states, but generates 75 per cent of its sales from the Chicago area.
The transaction was supposed to have been put to a shareholder vote in December, but the meeting was postponed amid criticism of CIBC's offer by three proxy advisory firms.
With a delayed vote, CIBC bought itself some time. Its executives hoped the U.S. bank-stock rally would lose steam. But when it didn't, CIBC bit the bullet and raised its bid by 20 per cent to $4.9-billion on March 30.
But it wouldn't be the last time CIBC would amend its offer. In April, CIBC's stock was swept up in a sector-wide selloff, which made its shares less valuable. On May 4, the Canadian lender sweetened its terms once more by raising the cash component of the deal by $3 a share, which offset its declining share price. CIBC said this was its "best and final offer," a move that received mixed reviews from proxy firms.
Of the votes cast, 83 per cent voted in favour of the deal, PrivateBancorp said in a regulatory filing.
CIBC will pay PrivateBancorp shareholders roughly $2.2-billion, or $27.20 a share, in cash and issue about 33.5 million common shares, representing a mix of 45-per-cent cash and 55-per-cent stock. This translates into 0.4176 of a CIBC common share for each PrivateBancorp share. However, the actual amount CIBC has to shell out depends on how its shares are trading when the deal closes.
CIBC estimates that the completion of the deal will contribute roughly $450-million (Canadian) of net income in fiscal 2020. In fiscal 2016, the bank posted earnings of $4.3-billion.
Shares in both banks were little changed on Friday.