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When Fifth Third Bancorp announced a US$4.7-billion deal to buy Chicago-based MB Financial Inc. in late May, it seemed clear that major Canadian banks operating in the U.S. Midwest would face stiffer competition.

The merger of the two U.S. banks isn’t expected to close until the first quarter of 2019. But with Fifth Third’s share price trading about 11 per cent lower since the deal was announced, weakening its offer, one analyst is wondering aloud whether there’s an opening for a rival bank to make a hostile bid for MB Financial and seize the upper hand in the Chicago market.

If so, could Bank of Montreal or Canadian Imperial Bank of Commerce be among the suitors?

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The potential for a hostile bid that would break MB’s deal with Fifth Third remains “a low risk,” said Brian Klock, an analyst at Keefe, Bruyette & Woods (KBW), in a research note. But with the existing buyer’s share price languishing, it’s not out of the question.

Fifth Third’s stock took a dive after the company reported its second-quarter financial results, before enjoying a modest rebound. Because 90 per cent of the purchase price is to be paid in Fifth Third shares, an offer that was once worth US$54.20 per share – a price considered expensive by some analysts at the time – now amounts to about US$48.81 a share. With MB’s own share price trading only dimes below that, “investors may have begun to question if this deal will proceed,” Mr. Klock said.

A Fifth Third spokesperson said the bank doesn’t “comment on speculation," and MB Financial did not respond to a request for comment.

The question now is whether rival banks smell an opportunity. “In our view, potential bidders would have to be large U.S. or Canadian banks that already have a presence in the Chicago metropolitan statistical area,” Mr. Klock writes.

The most likely bidders among U.S. banks, in his view, could include Ohio-based Huntington Bancshares, Inc., Pittsburgh’s PNC Financial Services Group, Inc. or Minnesota-based U.S. Bancorp. But he also notes that BMO and CIBC have been “acquisitive” in the U.S. Midwest.

BMO has long-standing roots in Chicago through its BMO Harris Bank subsidiary. The U.S. arm contributes about 27 per cent of BMO’s total profit, and chief executive Darryl White intends to increase that share to roughly a third within five years. He has also said that while the bank’s priority is to invest in its existing operations, if the right acquisition were to come along, “we’re prepared.”

In mid-June, senior BMO executives in Chicago declined to say whether the Canadian bank had made any prior bid for MB when asked by The Globe.

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Given the timing, CIBC is less likely to make an aggressive move for MB. CIBC is a relative newcomer to the Chicago market and is still digesting its US$5-billion acquisition of PrivateBancorp Inc., which closed last June. The prospect that the bank could rush into another big deal spooked some investors, and CEO Victor Dodig has assuaged those fears by signalling that while CIBC will consider smaller “tuck-in” acquisitions, larger deals are not in the cards for now.

Spokespeople for BMO and CIBC declined to comment.

For any bank, there are financial obstacles to a hostile bid: MB Financial would owe a US$151-million break-up fee to Fifth Third if it abandons the existing pact, and any new deal would likely dilute the buyer’s tangible book value. “If the buyer’s stock prices fell by the amount of the [tangible book value] dilution, it could wipe out half of the potential upside for [MB Financial] shareholders,” Mr. Kloke said. “In our view, this risk may more than offset the potential benefit for these banks.”

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