Toronto-Dominion to buy Commerce Bancorp for $8.5 bn

3 October 2007:

In a cash-and-stock deal worth $8.5 billion, the Canada-based Toronto-Dominion Bank is set to buy Commerce Bancorp. The development is seen as one that will help Toronto-Dominion Bank to expand its footprint in the United States.

Reports say that the transaction involves 75 per cent stock and 25 per cent cash. The buy will help Toronto-Dominion Bank, which incidentally is Canada's second-biggest bank, take a one-time pre-tax restructuring charge of about $490 million.

The deal would mean that Commerce Bancorp shareholders will get 0.4142 of a Toronto-Dominion Bank common share and $10.50 in cash for each common share of Commerce Bancorp. The deal will close by April 2008, subject to shareholder and regulatory approval, said a report. To reduce exposure to changes in interest rates, Commerce said it will sell a portion of its fixed-rate investment securities portfolio and reinvest in short-term or floating-rate AAA-rates securities. This will result in an aftertax charge of about $150 million for Commerce in the third quarter.

It may be recalled that the Commerce Bancorp had been on the threshold of a takeover ever since its longtime chief executive Vernon Hill quit the company. Hill was seen as the life of the company, and when he was pushed out, the company also turned vulnerable.

Meanwhile, analysts who described the pricing of the deal as not so extraordinary, opined that the integration risks are high for this deal versus other bank deals. This they said was due to the fact that the culture of the organization will change dramatically.

Related reports said that the Toronto-Dominion Bank transaction is expected to be 28 cents dilutive to its fiscal 2008 earnings, and 22 cents dilutive in 2009. On an adjusted basis, it will be 10 cents dilutive in 2008 and flat in 2009.

As Canadian banks are not allowed to merge with each other, acquisitions in the United States are the only way out for them to grow.




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