Confirming a recent report, BMO Financial Group and its Chicago-based unit BMO Harris Bank NA agreed to acquire BNP Paribas SA unit Bank of the West and its subsidiaries, with assets of approximately C$135 billion, or $105 billion, as of Sept. 30.
BNP Paribas has reportedly been working with advisers to explore a sale of its San Francisco-based unit.
Under the terms of the agreement, BMO will acquire Bank of the West for a cash purchase price of $16.3 billion, or $13.4 billion net of the estimated $2.9 billion of excess capital at closing at Bank of the West. The purchase price is estimated at 1.5x Bank of the West's expected tangible common book value based on the estimated balance sheet at close.
Upon closing, BMO intends to merge Bank of the West into BMO Harris Bank.
The deal is expected to close by the end of 2022.
"With the combination of two highly complementary geographies and building upon BMO's digital, data and analytics capabilities, this acquisition enables contiguous market extension, the acceleration of BMO's commercial banking expansion, and highly competitive scaled entry into California," according to a press release.
At announcement, S&P Global Market Intelligence calculates the deal value to be 119.04% of common equity, 171.53% of tangible common equity, 15.46% of assets, 18.24% of deposits and 17.26x earnings. The tangible book premium-to-core deposits ratio is 8.96%.
Market Intelligence valuations for bank and thrift targets in the West region between Dec. 18, 2020, and Dec. 18, 2021, averaged 140.76% of book and 150.63% of tangible book and had a median of 13.90x last-12-months earnings, on an aggregate basis.
On closing, the transaction will add nearly 1.8 million customers to BMO and will extend its banking presence through 514 additional branches and commercial and wealth offices in key U.S. growth markets.
Pursuant to the transaction, BMO will enter California with 228 branches to be ranked eighth with a 2.84% share of about $2.11 trillion in total market deposits; Colorado with 71 branches to be ranked fifth with a 3.17% share of some $197.15 billion in total market deposits; and Nebraska with 33 branches to be ranked ninth with a 2.24% share of roughly $79.42 billion in total market deposits, according to Market Intelligence data.
BMO will also enter Iowa with 24 branches to be ranked 25th with a 1% share of about $113.17 billion in total market deposits, and Oregon with 22 branches to be ranked 10th with a 2.36% share of approximately $112.68 billion in total market deposits, according to the data. BMO will likewise enter Wyoming, New Mexico, Oklahoma, South Dakota, Washington, Nevada, Utah, North Dakota and Idaho.
Additionally, BMO will expand in Minnesota, Kansas, Arizona, Missouri and Wisconsin as a result of the transaction, according to the data.
The deal also adds approximately $56 billion of loans and $89 billion of deposits based on Bank of the West's Sept. 30 balance sheet. BMO expects to take a gross credit mark of C$992 million, or 126 basis points of loans and reflect a C$218 million fair value mark, both of which will be accreted into adjusted earnings.
The transaction is expected to be immediately accretive on closing to BMO's adjusted EPS and over 10% accretive in 2024, including estimated cost synergies. The estimated internal rate of return is approximately 14%.
BMO expects to incur pretax merger and integration costs of approximately C$1.7 billion and to achieve pretax cost savings of approximately C$860 million, or 35% of Bank of the West's noninterest expenses, through operational efficiency improvements, with 100% of the cost savings executed by the end of the first year after closing.
BMO expects to fund the transaction primarily through excess capital on the combined entities balance sheet at closing, including an estimated C$3.8 billion from Bank of the West and C$13.5 billion from BMO, which includes the benefit from the sale of BMO's Europe, the Middle East and Africa asset management business and internal capital generation to the estimated closing date.
In addition, BMO intends to introduce a 2% discount on shares issued under its dividend reinvestment plan and expects to raise approximately C$2.7 billion of common equity prior to the closing date. BMO will not establish a normal course issuer bid and does not expect to repurchase shares prior to close.
BMO and BNP Paribas will also enter into a long-term distribution agreement for the provision of equipment finance and cash management solutions to BNP Paribas' North American customers.
As part of the deal, BMO will not close Bank of the West branches and will retain its front-line branch employees.
BMO Capital Markets and Morgan Stanley & Co. LLC acted as financial advisers, while Wachtell Lipton Rosen & Katz and Osler Hoskin & Harcourt LLP acted as legal counsel to BMO. For BNP Paribas, Goldman Sachs Bank Europe and J.P. Morgan Securities PLC served as financial advisers, with support from BNP Paribas Corporate Finance, and Sullivan & Cromwell LLP served as legal adviser.
Bank of the West had a total balance sheet size of $105 billion in assets and $89 billion in deposits as of Sept. 30, and BMO had total assets of $988 billion as of Oct. 31, according to the press release.