National Bank deal to buy CWB may take years to deliver promised benefits
National Bank of Canada’s deal to acquire a smaller rival in western Canada makes strategic sense, analysts said, but the transaction may take years to deliver on its promised benefits for shareholders.
Shares of the Montreal-based lender fell almost six per cent on Wednesday in reaction to its surprise announcement that it agreed to pay $5 billion in stock to acquire smaller rival Canadian Western Bank. The transaction, in which National would exchange 0.45 of its shares for each share of CWB, represented a 110 per cent premium over the target’s closing price on Tuesday.
Canadian Western shares surged 68 per cent to close at $41.89, still well below the implied price of the bid. That’s partly because of the long path to regulatory approval, which isn’t expected until late next year.
“This is a solid move for National as it has significant strategic benefits,” Jefferies Financial Group Inc. analyst John Aiken said in a report, citing increased scale and the opportunity for National to expand into western Canada.
CWB has higher exposure to commercial lending, which will help boost National on that front, Aiken wrote. The smaller bank is also less reliant on more volatile capital markets revenue.
“There is a high degree of likelihood that the deal is completed,” Aiken said, but while he expects it will ultimately win the blessing of Canada’s Competition Bureau, the timing of that is “hard to gauge.” The deal will also need an opinion from Canada’s banking regulator, and the finance minister has the final say.
“Despite our optimism on National Bank’s outlook from the deal, with the close 18 months out, investors will have to be patient on the expected payback,” Aiken said.
Merger approvals can be slow in Canada, as shown by
Read more on financialpost.com
