Canadian Imperial Bank of Commerce has won the heated bidding war for Merrill Lynch & Co.'s prized Canadian retail brokerage in a deal worth up to $600-million. CIBC will now boast Canada's biggest network of financial advisers.
CIBC will add Merrill's 1,000 financial advisers and its $50-billion in client assets to its existing retail network of 725 stockbrokers and $40-billion in assets.
If everyone sticks around, a retail network that operates under the brand name CIBC Wood Gundy will be the largest in the country, and trail only Royal Bank of Canada in assets under management -- RBC advisers oversee $108-billion.
CIBC will pay Merrill a minimum of $500-million and a maximum of roughly $600-million for its stockbrokers, with the price tag dependent on the number of brokers and clients who come over.
The final number will be set within 60 days, according to sources familiar with the transaction. CIBC is also said to have lined up a retention package worth up to $200-million to entice the stockbrokers.
"We're very conscious going into this that we must retain Merrill people, and ensure that our own people are treated well," said a senior CIBC executive who worked on the deal.
The Toronto-based bank already has a large U.S. operation, and the CIBC official said: "We think our North American focus in wealth management will suit the Merrill culture."
One source familiar with the talks said CIBC chief executive officer John Hunkin has made building his bank's wealth management business a priority.
Rival dealers have already mounted aggressive drives for Merrill's top producers, and the U.S. dealer had previously announced that it would cut retention cheques to its people to keep them at the shop while this sale played out.
In a hard-fought bidding war, Toronto-Dominion Bank made an offer for Merrill at roughly the same price as CIBC. However, the TD offer is said to have had more stringent conditions attached.
Rivals such as Bank of Nova Scotia and National Bank of Canada bid around $500-million for the network, as did a Merrill management team backed by the Caisse de dépôt et placement du Québec.
Merrill, the world's largest retail stock brokerage, announced three weeks ago that it was putting Canadian business up for sale as part of a global focus on its most profitable lines of business.
The CIBC purchase amounts to one of the greatest half-price sales in corporate history: The New York-based dealer bought its Canadian retail sales force in 1998 when it paid $1.3-billion for Midland Walwyn Inc.
This is the second time CIBC has bought a sales force from Merrill. The Canadian dealer stepped up during the bear market in 1989 and bought a smaller Merrill sales force. Many veterans of the New York-based firm firm are now senior executives at CIBC.
Daniel Bubis, chief investment officer of Winnipeg-based Assante Asset Management Ltd., said he is not surprised that CIBC has won the prize.
"They have said on a number of occasions that they were going to a wealth management acquisition on the distribution side . . . so this would fit with their strategy," Mr. Bubis said. "I think they believe, like a lot of the industry does, that it is a faster-growth and higher-return area."
CIBC can also afford to make the acquisition while Toronto-Dominion Bank is slightly capital constrained, as it is still digesting its takeover of Canada Trust, Mr. Bubis said.
He and other observers suggest that getting Merrill's investment management arm should be viewed as a key part of the deal.
Merrill has about $8-billion in assets under management, including $4.5-billion in mutual funds and the balance in packaged funds called "wrap" programs and other institutional accounts.
"We're doing this deal in the hopes that both sides can learn best practices in sales, management and strategy from each other," said the senior CIBC executive who worked on the transaction.
Sources say Merrill's money management arm had to be negotiated as part of the package because the lion's share of its assets are held by Merrill brokers.
One mutual fund analyst, who did not want to be named, said the acquisition of Merrill's money management arm increases the array of investment products that could be sold by CIBC's brokerage arm.
"I think it gives the Wood Gundy brokers more quality products to sell," the analyst said. "I don't think they have a lot of mid-tier wrap programs for people with under $100,000."
Analysts suggest CIBC could merge Merrill's $4.5-billion in mutual fund assets with $4-billion in assets managed by Talvest Fund Management Inc., the fund arm of Montreal-based TAL Global Asset Management Inc. owned by CIBC.
The merger of the two load fund companies would vault Talvest to become Canada's 15th largest fund company with $8.6-billion in assets from No. 21. CIBC Securities Inc., the no-load fund arm of CIBC, is already Canada's 8th largest fund company with $24.7-billion in assets.