Capital: CIBC Buying Oppenheimer for 'Very Reasonable' $525M

As widely expected, CIBC Wood Gundy Securities Corp., the corporate and investment banking arm of Canadian Imperial Bank of Commerce said Tuesday it would acquire Oppenheimer & Co.

The name of the new firm would be CIBC Oppenheimer Corp.

Details of the transaction were unveiled when top management at CIBC Wood Gundy met with the investment community in New York to discuss the deal.

CIBC Wood Gundy would pay $525 million in cash to purchase Oppenheimer, one of the last privately owned securities firms in the United States, including $175 million during the next three years to retain key executives.

The deal is expected to close by yearend.

Reports have been circulating about the deal for the past month-shortly after negotiations between Oppenheimer and PNC Bank Corp. broke down.

Michael Rulle, chairman and chief executive officer of CIBC Wood Gundy, said it looked at many small securities firms in the United States but concluded early on that Oppenheimer would be the best fit.

"Oppenheimer has strong research capabilities," said Mr. Rulle, who would become chairman and chief executive officer of the new firm and continue as head of its U.S. region. "They also have strong sales and trading and strong distribution."

So far, both bond and equity analysts are positive about the deal and are especially pleased with the price.

"I give the deal a thumbs up," said bank analyst A. Roy Palmer of TS Securities Inc., Toronto. "It will add to their earnings in the second year, and when you compare it with other deals, the price is very reasonable."

Banking companies in the United States have recently paid much more for securities firms than CIBC is paying out for Oppenheimer.

Most recently, NationsBank Corp. unveiled plans to buy Montgomery Securities for $1.2 billion and endured some criticism from Wall Street over the price. Meanwhile, BankAmerica Corp. is paying $540 million for Robertson Stephens & Co., San Francisco, and Bankers Trust New York Corp. is paying $1.7 billion for Alex. Brown & Sons, Baltimore.

Analyst Hugh Brown of Nesbitt Burns in Toronto also said he believes that the price is right for CIBC. "They have paid a reasonable price in a silly market," he said, referring to higher-priced deals. "It is also a tax-efficient acquisition."

The $175 million that the company is setting aside for compensation is tax-deductible and makes the goodwill negligible, he noted.

The Moody's rating agency also expressed confidence in the deal by confirming the senior debt ratings for the Canadian Imperial Bank of Commerce.

The bank's senior rating is Aa3; approximately $3.3 million of debt is affected.

"CIBC has sufficient financial flexibility to support its traditional banking businesses," said Moody's credit analyst Sean Jones. "In other words, if the deal does not produce the returns that the company is seeking, its credit profile is still well-protected."

Although there was overall optimism to the deal, some critics pointed out that CIBC still must contend with the possibility that Oppenheimer's top talent may leave or that culture conflicts may arise during the merger.

Mr. Rulle dismissed such criticism.

"Each of our firms felt very restricted with what they could do for their clients because of incomplete capability," said Mr. Rulle. "However, now there is a mutual desire to create a single organization that has a greater extended capability to do business."

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