BMO Financial to Acquire M&I
Under the terms of the agreement, each outstanding share of M&I will be exchanged for 0.1257 shares of Bank of Montreal upon closing.
Based on the closing share price of Bank of Montreal on the TSX of C$62.05 on December 16, 2010, the transaction values each share of M&I at $ 7.75, or an aggregate amount of approximately $4.1 billion in Bank of Montreal common shares. The closing share price of M&I on NYSE on December 16, 2010 was $5.79.
BMO expects to maintain strong capital ratios after the acquisition; BMO intends to raise approximately $800m in additional common equity prior to closing of the acquisition.
On a Basel II basis, before considering growth in capital from the business prior to closing, BMO's Tier 1 Capital Ratio as at October 31, 2010, pro forma for the acquisition and equity offering, would be approximately 11.7 percent.
The transaction has an estimated internal rate of return to BMO of more than 15 percent and is expected to be accretive to BMO's earnings in 2013, excluding one-time merger and integration costs of approximately C$540m. The transaction is expected to generate annual run-rate synergies of approximately C$250m which will be fully phased in by the end of fiscal 2013.
As part of the agreement, BMO will purchase M&I's TARP preferred shares at par plus accrued interest - with full repayment to the US Treasury immediately prior to closing. M&I's existing warrants held by the US Treasury will also be purchased by BMO.
The transaction, which has been approved by the BMO and M&I boards of directors, is expected to close prior to July 31, 2011.
Under the terms of the merger agreement, M&I will merge with a BMO subsidiary, and existing M&I shareholders will become entitled to receive common shares of Bank of Montreal. In connection with the merger agreement, M&I issued to BMO an option, exercisable under certain circumstances, to purchase up to 19.7 percent of M&I's common stock.
The transaction is subject to customary closing conditions, including regulatory approvals and approval from shareholders of M&I.
Bill Downe, president and CEO of BMO Financial Group, said: “The acquisition is consistent with our strategy to strengthen our North American businesses. It transforms BMO's competitive position in the US Midwest by bringing together highly complementary businesses that align well with BMO's retail, commercial, and asset/wealth management businesses in the US. It also increases scale and provides strong entry into other attractive markets, including Minnesota, Missouri, and Kansas, and expansion in Indiana and Wisconsin.”
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