TD Bank to Buy Commerce Bancorp in $8.5-Billion Deal


Canada's Toronto-Dominion Bank will buy Commerce Bancorp in a cash-and-stock deal worth $8.5 billion which will expand its footprint in the United States, the banks said Tuesday.

The transaction, involving 75% stock and 25% cash, will see TD , Canada's second-biggest bank, take a one-time pretax restructuring charge of about $490 million.

Commerce shareholders will get 0.4142 of a TD common share and $10.50 in cash for each common share of Commerce Bancorp.

That values the deal at $42.37 per Commerce share, based on TD's closing price on Monday on the Toronto Stock Exchange, the banks said. Commerce, New Jersey's largest bank, closed at $39.61 on the New York Stock Exchange, a price adjusted for its 13 cent quarterly dividend.

Commerce stock was up 3.2% before the bell on Tuesday.

In June, Commerce announced the departure of its longtime chief executive Vernon Hill. Analysts said the move left the bank vulnerable to a takeover, which Hill had long resisted.

Integration Risks

"He was the soul and the life of the company and when he was pushed out the life of the company was drawn out as well," said Gerard Cassidy, analyst at RBC Capital Markets.

"The pricing of the deal is not extraordinary," Cassidy said.

TD Bank to Buy Commerce

"The integration risks are high for this deal versus other bank deals, due to the fact that the culture of the organization will change dramatically," Cassidy said, adding the price could reflect expectations of higher than normal customer turnover.

The deal will close in March or April 2008, subject to shareholder and regulatory approval.

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.

Robust Canadian Dollar

TD said the the 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.

Cross-border acquisitions have been made easier for Canadian firms by the robust Canadian dollar, which reached parity with the U.S. dollar recently for the first time in more than 30 years.

Canadian banks are prevented from merging with each other.

"So unless you are making acquisitions in the United States, you are not making acquisitions at all," said Neil Andrew, associate portfolio manager at Leeward Hedge Funds.

"They have had the wind at their back for the last five years and now what is staring them in the face is the fact that trading volumes might slow, underwriting deals might slow and M&A might slow."

TD Banknorth, the U.S. arm of TD, already has a presence in New Jersey and parts of Philadelphia, Cassidy added, "so there certainly will be some branch reductions."