CIBC once had a much bigger presence in the United States, but decided to retreat back to the safety and familiarity of the Canadian market after a series of missteps in the early 2000s.Fred Lum/The Globe and Mail
PrivateBancorp Inc. is forging ahead with a planned May 12 meeting for investors to vote on the $4.9-billion (U.S.) takeover offer by Canadian Imperial Bank of Commerce, even as one proxy advisory firm is urging that they reject the latest terms of the deal.
Last Thursday, CIBC said it was boosting its bid for the Chicago-based commercial bank for the second time in five weeks. To compensate for its falling stock price, CIBC hiked the cash portion of its cash-and-stock transaction by $3 per PrivateBancorp share, with this latest offer giving the U.S. lender an implied value of $60.43 a share.
But proxy firm Institutional Shareholder Services says the extra cash is still not enough to reverse a recommendation it made in late April for shareholders to vote against the proposed transaction. Proxy firm Glass Lewis, on the other hand, threw its support behind the deal.
In a report published on Saturday, ISS said the $3-a-share cash bump pushes the implied value of CIBC's offer closer to "the lower end of what some shareholders appear willing to consider as fair value." It added that the revised terms do not give investors of PrivateBancorp any guarantee, such as a collar, that would "allow shareholders to lock in value, as uncertainties loom."
CIBC's shares have become less valuable, falling 7 per cent since it first revised its offer to $60.92 a share on March 29.
"Shareholders cannot be sure exactly how much of a premium they will receive," the ISS report said. The banks expect the deal to close in June.
On Monday, in a joint news release with PrivateBancorp, CIBC chief executive Victor Dodig said that CIBC is offering PrivateBancorp's "stockholders a significant premium, including certainty of value through the cash consideration and the opportunity to participate in the upside potential of the combined company."
CIBC's most recent offer, which the Canadian lender says is its "best and final," is for $27.20 in cash and 0.4176 CIBC common shares for each share of PrivateBancorp, or 45-per-cent cash and 55-per-cent stock.
"We strongly believe that ISS reached the wrong conclusion," Caroline Van Hasselt, a spokeswoman for CIBC, added Monday in an e-mailed statement.
ISS also said that PrivateBancorp stands to benefit if the United States follows through on its plans to lower regulation and reduce taxes, which could push its value even higher.
"The question for us is how many positive events for the industry would need to happen for the value to increase," Terry McEvoy and Erik Zwick, analysts at Stephens, wrote in a note Monday to clients.
They added that PrivateBancorp needs to improve its funding base to support loan growth. "To do so on a standalone basis would be expensive and difficult as [interest] rates rise," they said. "The deal with CIBC addresses this dilemma."
Not everyone agrees with ISS. Glass Lewis reaffirmed its support of the transaction on May 4.
In a note to clients, Glass Lewis said that the $3-per-share cash increase offsets "a significant portion" of the recent decrease in CIBC's shares and "improves the certainty of value" for PrivateBancorp's investors. However, it said that shareholders should continue to closely scrutinize CIBC's share price leading up to Friday's meeting.
"… any further declines to CIBC's share price could once again impair the attractiveness of the proposed merger to the company's shareholders, possibly resulting in another meeting adjournment or a failed shareholder vote," it added.