PrivateBancorp sale to CIBC suffers new setback – Finance News

on May2

1 May 2017 | 5:00 pm

The second time isn’t a charm for PrivateBancorp’s proposed sale to Canadian bank CIBC in the eyes of a prominent proxy advisory firm.

Institutional Shareholder Services on April 29 urged PrivateBancorp shareholders to vote against the sweetened terms of a buyout first unveiled in late June. ISS said CIBC’s increased bid, made public more than a month ago, wasn’t enough to compensate shareholders for giving up PrivateBancorp’s potential upside if the Trump administration is successful in cutting corporate taxes.

ISS’ conclusion was something of a surprise, and it’s a significant blow to the Chicago bank’s management and board, which unanimously recommended approval of the new deal terms.

Shareholders are scheduled to vote May 12. If the votes aren’t there, CIBC could move to delay the shareholder meeting up until June 29.

VICTIM OF ITS SUCCESS

In some respects, PrivateBancorp, with assets of $20.4 billion as of March 31, appears to be a victim of its own loan-growth success.

“The stand-alone company’s earning power appears to be growing strongly, partly from the favorable macro backdrop of a growing economy and rising interest rates,” ISS wrote. “Potential reductions in taxes and regulations provide optionality to shareholders and could result in increased earnings, higher returns on equity and a higher stock price.”

Meanwhile, if PrivateBancorp stockholders take the deal, they’ll be getting 60 percent of the consideration in CIBC shares. With PrivateBancorp’s franchise accounting for maybe 10 percent of CIBC’s future earnings, they won’t see much of a return from the tailwinds benefiting the U.S. banking industry, ISS wrote.

When CIBC announced the new terms March 30, the bid was valued at $60.92. Now, after a decline in Canadian bank stocks, it’s at $57.97, or $4.64 billion.

PrivateBancorp is trading just below that, at $57.83, indicating shareholders believe for now that the deal will be approved.

‘WRONG CONCLUSION’

In a statement, CIBC said: “We strongly believe that ISS reached the wrong conclusion in failing to recommend that PrivateBancorp shareholders vote for the amended agreement with CIBC. We continue to believe that a merger between CIBC and PrivateBancorp is a compelling opportunity that strengthens PrivateBancorp and offers immediate and long-term value for both companies’ shareholders.”

It noted that another proxy advisory firm, Glass Lewis, recommended shareholders vote “yes.”

Asked whether it would be open to raising its price, a bank spokeswoman didn’t respond.

CIBC CEO Victor Dodig at first approached PrivateBancorp CEO Larry Richman on March 17 to raise the bid to $59 per share. PrivateBancorp’s board rejected that as too low and said its shareholders weren’t likely to accept anything less than $60, according to the proxy statement laying out the new terms.

Dodig then came back with an offer just over $60.

With that value now having eroded, ISS wrote, “CIBC is . . . unlikely to raise its offer. Although CIBC has never explicitly stated that this represents its best and final offer, the proxy indicates ‘that CIBC and its board did not intend to offer any further increase to the merger consideration.’ “

With any other bidders for PrivateBancorp unlikely to emerge, ISS wrote, the choice for shareholders is between CIBC and continuing to go it alone.

What ISS’ report doesn’t mention, but is surely a factor, is that PrivateBancorp’s management, led by Richman, would prefer to work for a larger institution. They’re all slated to keep their jobs after the deal closes, and Richman would run the U.S. for CIBC.



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