Canadian Imperial Bank of Commerce in Toronto has agreed to buy PrivateBancorp in Chicago for $3.8 billion, finally giving the Canadian bank a meaningful retail presence in the United States.
CIBC said in a press release Wednesday that it will pay $47 a share in cash and stock for the $17.7 billion PrivateBancorp in a deal that is expected to close in the first quarter. The deal values PrivateBancorp at 220% of its tangible book value.
The acquisition "accelerates our strategy of building a strong, innovative and client-focused bank by creating opportunities to bank across borders for our Canadian clients, and offering more services to our private wealth clients at Atlantic Trust," Victor Dodig , CIBC's president and chief executive, said in the release. "We see this as a long-term strategic transaction that creates a platform for growth across North America, expands and deepens our client relationships, and creates a broader, diversified, and more valuable CIBC for our shareholders, our clients and our team."
CIBC was "deliberately thoughtful," taking several years to evaluate U.S. banking targets, Dodig said during a conference call to discuss the deal. He said CIBC's U.S. earnings should double after the deal is completed – to 10% of the company's total profit – with expectations of that contribution increasing to 25% over time.
CIBC had largely avoided large-scale acquisitions in the United States, even as Bank of Montreal, Toronto Dominion Bank and Royal Bank of Canada scooped up banks. BMO, for instance, bought Harris Bank in Chicago in the 1980s. CIBC, which did buy Atlantic Trust, a U.S. private wealth management firm, is making a large splash with the biggest bank deal announced so far this year in terms of deal value. (Huntington Bancshares' planned purchase of FirstMerit is valued at $3.3 billion.)
Selling is an interesting move for PrivateBancorp, which had been rumored to be in the running to buy Standard Bancshares, which agreed on Tuesday to sell itself to First Midwest Bancorp.
PrivateBancorp, along with Northern Trust and Wintrust, had been one of the few remaining large independent banks based in Chicago. PrivateBancorp is the seventh-biggest bank in the Chicago area, holding 3.1% of the area's deposits, based on June 2015 data from the Federal Deposit Insurance Corp.
PrivateBancorp has 35 offices, including 24 full-service branches in four states. It also had $13.5 billion in loans and $14.5 billion in deposits at March 31.
Larry Richman will remain PrivateBancorp's president and chief executive and will join CIBC's executive committee. Richman, who will report to Dodig, will also become head of CIBC's U.S. region, which will include PrivateBank, Atlantic Trust, and CIBC's U.S. corporate banking business.
CIBC said it expects the deal to be accretive to its adjusted earnings per share in its third year. PrivateBancorp will stay headquartered in Chicago and will keep its state banking charter. The deal should add $400 million to CIBC's net income after taxes by 2020.
CIBC also said it expects to incur $130 million to $150 million in merger-related charges.
J.P. Morgan Securities, CIBC World Markets, Torys, Mayer Brown and Sidley Austin advised CIBC. Goldman Sachs; Wachtell, Lipton, Rosen & Katz; and Vedder Price advised PrivateBancorp; Sandler O'Neill provided a fairness opinion.