1 Big Bank That Might Have a Mega-Merger Soon

Canada’s oldest bank and dividend pioneer has raised the funds it needs to make a mega-merger happen soon.

| More on:

On March 22, 2022, Bank of Montreal (TSX:BMO)(NYSE:BMO) offered to sell 18.1 million shares (worth $2.7 billion) to help fund the purchase of Bank of the West. Scott Chan, managing director of equity research at Canaccord Genuity, said the deal with BNP Paribas to acquire its U.S. subsidiary will define the legacy of Darryl White at BMO. White is the current CEO of Canada’s oldest bank.

The price of the big bank stock fell following the announcement of the share sale. However, on March 29, 2022, BMO raised the fund it needs to pursue the largest deal in Canadian banking sector. The $96 billion bank will use its excess capital to fill the remaining balance. Thus, it’s a green light for the mega-merger that should close by the end of calendar year 2022.    

Biggest splash

CEO White said the acquisition of Bank of the West for US$16.3 billion is complementary and affordable. While some industry observers say it’s a big bet, BMO argued it will add meaningful scale and expansion in attractive markets. The enhanced and capabilities will likewise drive greater growth, returns, and efficiencies.

BMO already enjoys robust growth across the border because of its wholly owned subsidiary BMO Harris Bank. Upon closing of the transaction, the Canadian big bank gains close to 1.8 million customers instantly. Furthermore, it extends BMO’s banking presence with Bank of the West’s 514 branches and commercial and wealth offices in key U.S. growth markets.

Great opportunity

David Casper, BMO’s U.S. CEO and Group Head of its North American Commercial Banking segment, is thrilled with the coming mega-merger. He said, “Bank of the West is a well-run and well-respected organization that will bring complementary capabilities, products and segment expertise to BMO, all of which are accretive to our existing franchise.”

Casper added, “It’s also a great opportunity to build upon our strong track record of engaging with communities where we operate.” Post-transaction, BMO will have a footprint in 32 states along with a strong position in three of the top five U.S. markets. Moreover, it gains as an expanded national specialty commercial business plus a digital banking platform that generates deposits in 50 states.

Overallotment

BMO Capital Markets led the syndicate of underwriters for the equity offering. The group exercised its overallotment option in full for total gross proceeds of $3.1 billion (20,843,750 common shares).

Regarding the regulatory process to obtain approval, Tayfun Tuzun, BMO’s CFO, is optimistic that nothing will prevent the mega-merger from happening. Tuzun said, “We are very cognizant of the environment, but we believe that we have a transaction here that should not pose any issues in meeting the guidelines provided by the regulatory process.”

Like BMO, Toronto-Dominion Bank has excess capital to pursue M&As. On February 28, 2022, Canada’s second-largest bank announced a US$13.4 billion all-cash agreement to acquire First Horizon, a Memphis-based bank. Expect the two big banks to compete to accelerate business growth in the United States.

Buy and hold

BMO is the TSX’s dividend pioneer, whose dividend track record is 193 years. At $148.10 per share, the dividend yield is 3.57%. You can buy the big bank stock today and hold it forever.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Christopher Liew has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

More on Bank Stocks

stock research, analyze data
Bank Stocks

Canadian Bank Stocks: Buy, Sell, or Hold?

There are opportunities and risks on the horizon for the Canadian banks.

Read more »

data analyze research
Bank Stocks

Where Will TD Stock Be in 5 Years?

Toronto-Dominion Bank (TSX:TD) has taken a beating over the last year. Where will it be in another five?

Read more »

Paper Canadian currency of various denominations
Bank Stocks

1 Magnificent Canadian Dividend Stock Down 28% to Buy and Hold for Decades

This top Canadian dividend stock is underperforming its large peers this year, but a turnaround could be on the horizon.

Read more »

data analyze research
Bank Stocks

Is BMO Stock a Buy for its 4.8% Dividend Yield?

Canadians are looking to cut back, and BMO stock is on board. But it could also be a top stock…

Read more »

Investor reading the newspaper
Bank Stocks

Is Canadian Imperial Bank of Commerce Stock a Good Buy?

CIBC is a TSX bank stock that has delivered marketing-beating gains to shareholders in the last two decades. Is the…

Read more »

Man data analyze
Bank Stocks

Where Will TD Stock Be in 5 Years?

TD stock is a good consideration for a 5.2% dividend on the recent dip. It provides upside potential, too, but…

Read more »

customer uses bank ATM
Bank Stocks

These 3 Canadian Bank Stocks Are Next in Line to Pop

Let's dive into three Canadian bank stocks that look well-positioned to continue to soar over the long term.

Read more »

a person looks out a window into a cityscape
Stocks for Beginners

Bank of Montreal vs. RBC: Which Canadian Bank Stock is the Better Buy?

Earnings season is upon us, and the Canadian banks will be reporting before you know it. So which of these…

Read more »