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(Reuters) - Canadian Imperial Bank of Commerce (CM.TO) increased the cash element of its offer for Chicago-based PrivateBancorp Inc PVTB.O on Thursday in a final $4.9 billion bid to push the deal through ahead of a May 12 shareholder vote.
The cash-and-share offer restored the initial valuation of PrivateBancorp from CIBC's previous bid, offsetting a drop in the Canadian bank's shares driven by concerns about its housing market exposure that had eroded the earlier offer's stock-based component.
Canada's fifth-biggest lender, which is the most exposed to the country's housing markets, is keen to diversify its revenue stream and reduce reliance on its domestic market amid fears of a housing bubble in Toronto.
Pressure on CIBC to increase its offer for a second time intensified on Monday when shareholder advisory firm Institutional Shareholder Services (ISS) recommended PrivateBancorp shareholders vote against it. ISS cited concerns about Canada's housing market as one factor behind the recommendation.
An earlier shareholder vote was postponed in December after some PrivateBancorp investors had indicated they would reject CIBC's first offer.
CIBC has long coveted a major U.S. acquisition and PrivateBancorp looked to tick all the boxes by providing CIBC a platform to expand into the United States and offer U.S. banking services to Canadian clients. Meanwhile, regional U.S. banks have been consolidating in response to tough market conditions.
The initial $3.8 billion offer, pitched last June at what was then a healthy premium to PrivateBancorp's market value, seemed set for smooth passage to completion before Donald Trump's victory in the U.S. presidential election in November sent U.S. banking shares soaring.
Expectations of higher interest rates, lighter banking regulation and a lower corporate tax rate following Trump's election helped PrivateBancorp shares rise by more than a third, leaving CIBC with no choice but to pay more if it wanted to complete the deal.
CIBC raised its takeover offer by 20 percent to about $4.9 billion in March.
However, CIBC's U.S.-listed shares subsequently fell by nearly 10 percent, reducing the value of the share-based component of that offer.
CIBC said on Thursday it would offer an additional $3 in cash for each PrivateBancorp share, raising the cash element to $27.20 per share. It left the stock component unchanged at 0.4176 of its shares for each of the U.S. bank's shares.
The Canadian bank also pushed back the cut-off date for shareholders to receive its next quarterly dividend so that PrivateBancorp shareholders will be eligible for the payout, worth $0.39 per PrivateBancorp share, based on the last quarter's dividend.
"We believe that this does materially increase the likelihood of success," Barclays analyst John Aiken said.
The moves restored the overall value of the offer to $60.43 per share.
Shares in CIBC were down 1.2 percent at 11:10 a.m. EST while shares in PrivateBancorp were up 3.6 percent to $59.57, 1.4 percent below the offer price.
CIBC said the latest bid was its "best and final offer to the PrivateBancorp stockholders."
Additional reporting by Greg Roumeliotis in New York and Swetha Gopinath in Bengaluru; Editing by Paul Simao and Meredith Mazzilli