PVTB: New Deal Terms Announced; No Change to Estimates or ‘Market-Perform’ Rating

PDF ATTACHEDPVTB Company Update 3-30-17

Close $56.20 / “Market-Perform” / $60.00 Price Target / HQ=Chicago, IL / $4.5 Bil. Mkt. Cap

  • CIBC increases deal terms by ~20%. At ~$60/share (based on current trading) while far from certain the transaction has a good chance to gain shareholder approval.
  • FY17 and FY18 EPS estimates unchanged at $2.90 and $3.20, respectively.
  • Increasing price target by $1 to $60/share. Stock currently trading at slight discount to revised terms.

On 3/30/17, CIBC (CM/Not rated) announced new deal terms, which was widely expected given PVTB shares have been trading meaningfully above the implied value for some time. Under the revised terms each share of PVTB will receive 0.4176 CM shares + $24.20 in cash. This compares to the original terms of 0.3657 CM shares + $18.80 in cash. Based on current trading this values PVTB at ~$60/share and is an increase of ~20% vs. the original terms.

Based on the revised terms this values PVTB at ~19x our FY18 EPS estimate of $3.20 and ~18x the consensus estimate of $3.35. On a Price-to-TBV basis this equates to ~265%. These multiples compare to our current FIG Bank peer group medians of ~16.5x and 220%, respectively.

The termination fee was also increased from $150 million to $198 million and the transaction is now expected to close in 2Q17 pending shareholder approval. The record date for shareholders is 3/31/17 and a special meeting is expected to take place in mid-May. This compares to the revised meeting date of 5/4/17 that was announced earlier this month (on 3/6/17).

While far from certain we believe that given the new deal terms there is a much better chance now a receiving shareholder approval. A big part of the approval process will hinge on how the ETF’s vote given they are some of the largest shareholders and their vote will be driven by the recommendation of the proxy firms. As of 12/31/16 the top three ownership positions were held by ETFs: BlackRock – 9.99%; Vanguard – 7.47%; and State Street – 5.24%.

Based on current trading PVTB is now up ~31% since 11/8/16 which is a modest premium to the peer group (+26% median). In our last note on PVTB (dated 3/7/17) we stated that for the deal to get approval the pricing would most likely need to be north of $60/share. With the revised value right at ~$60/share the chance for approval is now much better but still far from certain. With PVTB shares now trading at a slight discount to the revised deal value we are maintaining our ‘Market-Perform’ rating.