To understand why Bank of Montreal might be willing to step up to the plate for Fairfax Financial Holdings Ltd. in a buyout of BlackBerry Ltd., just look back at their history.
For years now, BMO's debt capital markets group has led Fairfax's bond offerings – the latest of which totalled $500-million in January – and BMO has been the lead underwriter for Fairfax on a number of equity deals, such as its $238-million preferred share sale in 2012.
The relationship goes even deeper. BMO has been tied to Fairfax mergers and acquisitions, such as the buyout of Arbor Memorial Services for $375-million in 2012, when the bank advised Fairfax and its partners and also served as lead arranger for the debt financing. And on the lending side, BMO has even served as the lead arranger for Fairfax's credit facilities.
So the two companies have quite a past. Why does it matter? Because in many cases, investment banking relationships must be handled like family connections. If you're an investment bank and your client needs you, you go to bat for them, the same way you would help out a sister or brother even if it isn't in your best interest.
Plus, Fairfax has doled out solid fees to BMO over the years, and on Bay Street there's an unwritten agreement that you stand by your top clients. So there's a decent chance that the bank feels like it needs to stand tall with Mr. Watsa right now.
Of course, BMO isn't the only possible lender. Bank of America Merrill Lynch has also been named, and people familiar with the talks say the two could commit up to $3-billion collectively. Though the reasons for BofA's participation could be wholly different from BMO's, at least we have a good idea of why BMO is even thinking about playing ball.
(Tim Kiladze is a Globe and Mail Reporter.)
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