The Canadian Western Bank’s first Eastern branch in Mississauga, on Oct, 31, 2021. In June, CWB and National Bank of Canada announced an all-share merger that will combine the Alberta lender that specializes in commercial banking with Quebec’s leading bank.Christopher Katsarov/The Globe and Mail
Canadian Western Bank’s acceptance of a $5-billion takeover was influenced by a juicy acquisition premium and Laurentian Bank of Canada’s failure to sell itself last year, according to merger filings.
In June, CWB and National Bank of Canada NA-T announced an all-share merger that will combine the Edmonton-based lender that specializes in commercial banking with Quebec’s leading bank.
In a proxy circular filed late Friday that outlines the board decision-making process, CWB said its directors were enticed by the 110-per-cent buyout premium National Bank offered and the potential to grow as a bigger bank.
The board also weighed whether CWB would be better off on its own, and what would happen if the deal talks leaked, which is what happened to Laurentian.
In July, 2023, The Globe and Mail reported that Laurentian hired financial and legal advisers to quietly shop the Montreal-based bank to potential buyers. Ultimately, however, no attractive bids materialized, and the bank had struggled to win back investors since.
CWB’s board determined that it was unlikely any other bidder would be willing and able to propose a transaction that rivalled National’s, and weighed what happened to “another similarly sized Canadian bank.”
The proxy circular says, “the board was also concerned about the heightened risk of leaks in a strategic process and resulting negative impact to CWB of such leaks and determined that such risks could be more appropriately mitigated by pursuing the transaction.”
Like Laurentian, CWB’s share price has also struggled. The stock, before the takeover by National Bank was announced, was down 10 per cent over five years – and had dropped 38 per cent from its peak.
On Bay Street, a tie-up between the two lenders has long been viewed as sensible because they have very little geographic overlap, but it was never clear if the two had formal talks. CWB disclosed in the takeover filing that National first made an unsolicited and non-binding acquisition proposal on Nov. 4, 2022.
At the time, the Big Six banks were salivating over the chance to acquire HSBC Canada, then the country’s seventh-largest lender, because its parent company had put the Canadian division up for sale.
In late October, a month into the sale process, The Globe and Mail reported that at least two banks, including National and Canadian Imperial Bank of Commerce, were out of the running. Wasting little time, National turned around and attempted to make its own deal.
Initially, CWB rebuffed the bank, and National ultimately made three takeover proposals before talks between the two lenders got serious this past spring.
Throughout the talks, CWB relied on JP Morgan Chase & Co. as its financial adviser. That means the American bank has been lead adviser on three significant Canadian banking sale attempts in the last two years.
J.P. Morgan also ran HSBC Canada’s sale process, and it also led Laurentian Bank’s strategic review.
If the merger between National and CWB goes through, J.P. Morgan stands to make $55-million, according to the takeover filing. If the deal is not approved, the American bank will still make $7-million under a fixed fee. CWB has also agreed to pay J.P. Morgan a percentage of any break fee it receives in that scenario.
CWB received legal advice from Torys LLP, while National Bank received financial advice from National Bank Financial, its in-house investment bank, as well as from Jefferies Securities Inc. McCarthy Tétrault LLP and Mayer Brown LLP served as its legal advisers.
National needs approval from at least two-thirds of the votes cast by CWB shareholders, who, if the two banks are combined, will represent roughly 10.5 per cent of the merged institution’s shares.