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By John Tilak and Matt Scuffham
TORONTO Feb 24 Canadian Imperial Bank of
Commerce's insistence on keeping its discipline while
assessing whether to increase its $2.9 billion bid for
Chicago-based PrivateBancorp leaves the bank's U.S.
expansion plans in the balance.
PrivateBancorp postponed a shareholder vote on the deal in
December after some investors indicated they would reject it.
They argued it undervalued the business following Donald Trump's
election as U.S. president, which sparked hopes of lighter
financial regulation, lower tax rates and higher interest rates.
Many PrivateBancorp investors had expected CIBC would come
back with a higher offer when it reported results on Thursday.
But it held its ground, saying it would wait to see how events
in the United States unfold between now and June 27, when its
current offer expires.
CIBC’s offer is worth about $52 per PrivateBancorp share,
above the $47 deal value at the time of the deal announcement
but below PrivateBancorp’s share price of $56.50 on Friday.
CIBC's Chief Executive Victor Dodig, who had pinned his
hopes on the PrivateBancorp deal reducing his bank's dependence
on a lackluster Canadian economy and frothy housing markets, is
now facing an agonizing dilemma over whether to bid more or walk
Sources close to CIBC, who declined to be identified by
name, said the bank may marginally improve its initial offer but
question whether that would be enough to placate PrivateBancorp
shareholders, who are demanding about 25 percent more to secure
"The question for CIBC is, how much more can they afford to
pay without entering into a transaction that is excessively
dilutive?" a source familiar with the bank's thinking said.
The source said it would be tough for CIBC to find an
alternative for U.S. expansion in the near-term.
"It took a long time for CIBC to find PrivateBancorp,” the
source added. "If they walk away, they're back to being the most
Canadian of the country's big five banks."
There appears to be little prospect of PrivateBancorp
accepting the current offer unless unexpected events cause
markets to retreat. The U.S. bank's shares have surged nearly 60
percent since CIBC's offer on June 29 and about 30 percent since
the beginning of November.
"We feel CIBC's bid undervalues the strong franchise and
future of PrivateBancorp, especially given the changing banking
landscape," said David Neuhauser, managing director at U.S.
hedge fund Livermore Partners, which owns PrivateBancorp shares.
John Rodis, research analyst at boutique U.S. investment
bank FIG Partners, said PrivateBancorp shareholders are angling
for the high end of the $60 to $70 range.
"All that I know for sure is the deal in its current form
does not get done...but I would think that they would come back
with at least one better offer," he said
CIBC's Dodig said on Thursday the bank "will be disciplined
and we will be patient when it comes to price."
SIGNS OF CAUTION AT CIBC
Some advisers said CIBC's cautious approach made sense.
"CIBC is sending signals that they're not going to buy a
company of that size based on speculation around what the tax
rate could be in the future or what the banking regulations
might be," said one source.
Another source said Thursday’s comments were aimed at
warming up CIBC investors to the prospect of walking away.
"It tells me that they're lowering expectations for a deal,"
he said. "They're preparing the market for the possibility that
a deal does not get done."
Some bankers said CIBC investors would not be too
disappointed if they chose to walk away.
"If I were an investor, I'd say,'That's good discipline.
They agreed to a price, they signed a contract and stuck to
their guns. I wouldn't have a problem with that,'” said one
(Reporting by John Tilak and Matt Scuffham; Editing by Cynthia