National Bank of Canada has announced:
- Aligned with National Bank’s strategic plan to accelerate growth across all its business lines in Canada
- Provides customers an expanded product and service offering nationally, extensive banking centre network and common customer experience culture
- Maintains branch footprint and Edmonton-based executive and operational presence
- Combination creates stronger competitor, and provides more choice for Canadians
- Concurrent subscription receipt offering of $1 billion
National Bank of Canada (“National Bank”) (TSX: NA) and Canadian Western Bank (“CWB”) (TSX: CWB) today announced they have entered into a definitive agreement (the “Agreement”) for National Bank to acquire CWB, a diversified financial services institution based in Edmonton, Alberta. The transaction brings together two complementary banks with growing businesses, enabling the united bank to enhance services to customers by offering a comprehensive product and service platform at national scale, with a regionally focused service model.
National Bank will acquire all of the issued and outstanding common shares of CWB (the “CWB Shares”) by way of a share exchange (the “Transaction”), valuing CWB at approximately $5.0 billion (the “CWB Equity Value”).
…
Each CWB Share, other than those held by National Bank, will be exchanged for 0.450 of a common share (the “National Bank Shares”) of National Bank (the “Exchange Ratio”). Based on the 20-day volume weighted average trading price of the National Bank Shares on the TSX as of June 11, 2024, the Exchange Ratio values each CWB Share at $52.24, representing a 110% premium to the closing price of the CWB Shares on the TSX of $24.89 as of June 11, 2024, and a 100% premium to the volume weighted average trading price of the CWB Shares over the last 20 days. The National Bank Shares to be issued upon closing of the Transaction will represent a pro forma ownership of approximately 10.5% of National Bank by CWB shareholders, taking into account the Private Placement and the Public Offering (as defined below).The Transaction is subject to approval of 662/3% of the votes cast by CWB shareholders at a special meeting of shareholders (the “Meeting”) expected to be held in September 2024 to approve an amendment to CWB’s by-laws to provide for the share exchange.
…
Each CWB Share, other than those held by National Bank, will be exchanged for 0.450 of a common share (the “National Bank Shares”) of National Bank (the “Exchange Ratio”). Based on the 20-day volume weighted average trading price of the National Bank Shares on the TSX as of June 11, 2024, the Exchange Ratio values each CWB Share at $52.24, representing a 110% premium to the closing price of the CWB Shares on the TSX of $24.89 as of June 11, 2024, and a 100% premium to the volume weighted average trading price of the CWB Shares over the last 20 days. The National Bank Shares to be issued upon closing of the Transaction will represent a pro forma ownership of approximately 10.5% of National Bank by CWB shareholders, taking into account the Private Placement and the Public Offering (as defined below).The Transaction is subject to approval of 662/3% of the votes cast by CWB shareholders at a special meeting of shareholders (the “Meeting”) expected to be held in September 2024 to approve an amendment to CWB’s by-laws to provide for the share exchange.
…
ACQUISITION FINANCINGNational Bank also announced today that it intends to complete an equity financing in connection with the Transaction. The equity financing is comprised of a public offering (the “Public Offering”) and concurrent private placement (the “Private Placement”) of subscription receipts (the “Subscription Receipts”) for gross proceeds totaling approximately $1.0 billion before giving effect to the Over-Allotment Option and the Additional Subscription Option (as defined below).
Pursuant to the Public Offering, National Bank has agreed to issue and sell 4,453,000 Subscription Receipts at a price of $112.30 for total gross proceeds of approximately $500 million. The Public Offering is being underwritten on a bought-deal basis by a syndicate of underwriters led by National Bank Financial Inc. (“NBF”). National Bank has granted the underwriters an option (the “Over-Allotment Option”) to purchase up to an additional 667,950 Subscription Receipts at the public offering price exercisable up to 30 days after closing of the public offering.
Pursuant to the concurrent Private Placement, National Bank has agreed to issue and sell 4,453,000 Subscription Receipts at the public offering price to Caisse de dépôt et placement du Québec or an affiliate thereof (“CDPQ”) for gross proceeds of approximately $500 million. All of CDPQ’s Subscription Receipts will be subject to a statutory hold period of four months plus one day from the date of their issuance. CDPQ will have the right to purchase up to an additional 667,950 Subscription Receipts, to maintain its pro-rata ownership and subject to, and in the same proportion as, the Over-Allotment Option being exercised by the underwriters (the “Additional Subscription Option”).
National Bank intends to use the net proceeds from the equity financing to support strong regulatory capital ratios following the closing of the Transaction, to fund any cash consideration under the terms of the Transaction and to pay the Transaction expenses.
Affected issues are CWB.PR.B and CWB.PR.D.
Thanks to Assiduous Reader IrateAR for bringing this to my attention!
What will happen to the CWB.PR.B shares if the takeover goes through?
The two CWB pref issues will become NA pref issues, since they are part of CWB’s capital structure. CWB.PR.B is up 7% on this, CWB.PR.D barely at all (presumably since it was already trading at a healthy premium to par).
This deal will not be completed until late 2025, and even though there is little overlap between the two banks’ markets, there is no guarantee that it will go through. It should go through, but since politicians and bureaucrats will be involved in the approval process, there is always that chance that someone wants to make a name for themselves and wants to nix the deal.
Good question CaddilacMan. I hope you own a bunch!
I think once the deal is done NA will want to wind up CWB to maximize regulatory capital flexibility.
I was hoping that we’d be in for a big windfall since they’d have to pay up large to get them back — whether by way of tender or exchange offer for NA prefs.
Sadly (but better than a kick in the head), they are redeemable at $25.50:
Subject to the provisions of the Bank Act and to the prior consent of the Superintendent and to the provisions
described below under the heading “Restrictions on Dividends and Retirement of Shares”, on not more than 60 nor
less than 30 days’ notice, the Bank may redeem all or any part of the then outstanding Series 6 Preferred Shares, at
the Bank’s option without the consent of the holder, by the payment of an amount in cash for each such share so
redeemed of: (i) $25.00 together with all declared and unpaid dividends to the date fixed for redemption in the case
of redemptions on April 30, 2024 and on April 30 every five years thereafter; or (ii) $25.50 together with all
declared and unpaid dividends to the date fixed for redemption in the case of redemptions on any other date on or
after April 30, 2019.
I think the price should bump up as CWB common get closer to deal value — still a big discount with CWB at $42 versus $49.50 implied value at 45% of NA trading $110
Niagara, IMHO the CWB prefs, if they remain o/s, will trade off of NA levels but there is no mechanism for them to “become” NA prefs under their terms — if that is what you are saying.
I am with Niagara on this one.
This takeover by means of a share exchange reminds me of the Cenovus purchase of Husky. Husky common shareholders received 0.7845 of a Cenovus common share (and a Cenovus common share purchase warrant) in exchange for each Husky common share. As for the outstanding Husky preferred shares ( I held some), the holders after a vote to that effect exchanged their preferred shares for new preferred shares issued by the merged company. I recall being advised that if that vote failed, the existing preferred shares would remain outstanding and Husky become a wholly owned subsidiary of Cenovus.
The transaction was done by a Plan of Arrangement.
For greater clarity, when I wrote “new preferred shares” issued by the merged company it was simply the same old Husky prefs but now trading under their new moniker.
Hi peet.
I see the difference here is they’re doing a share exchange vs. a plan of arrangement. CWB will continue to exist as a wholly-owned sub and nothing changes with the prefs. My theory is that at some point they will want to wind up CWB for regulatory capital efficiency (which is big $). That would require consent of the pref holders of course, so easiest path would be to call them for $25.50 and drive on. CWB.PR.D is priced for a call already with its 404bps fixed spread, so might as well just clear the decks IMO.
Cenovus/Husky has no regulatory capital burden so incentive. However, I do think the prefs underplayed their hands in that situation — there would be costs and inefficiencies to keeping Husky intact, they were getting prefs of a lower-rated entity, and they should have demanded compensation/called Cenovus’s bluff by voting no. I have read several posts from James where he’s amazed at how the pref holders roll over when they should put their boxing gloves on.
Cenovus press release:
The transaction is structured through a plan of arrangement in respect of the securities of Husky under the Business Corporations Act (Alberta), and is subject to the approval of at least two-thirds of the votes cast by holders of Husky common shares. Hutchison Whampoa Europe Investments S.à r.l., which holds 40.19% of the Husky common shares and L.F. Investments S.à r.l., which holds 29.32% of the Husky common shares, have each entered into a separate irrevocable voting support agreement with Cenovus pursuant to which each has committed to vote all of its Husky common shares, representing, in total, approximately 70% of the Husky common shares, in favour of the transaction at the special meeting of Husky shareholders. In addition, Husky will also seek the approval of at least two-thirds of the votes cast by holders of outstanding Husky preferred shares voting together as a single class. If Husky preferred shareholder approval is obtained, each Husky preferred share will be exchanged for one Cenovus preferred share with substantially the same commercial terms and conditions as the Husky preferred shares. The transaction is not conditional on Husky preferred shareholder approval and, if not obtained, the Husky preferred shares will remain outstanding in a subsidiary of the combined company.
And Hi to you too, Sonoffergus.
I think you’re onto something here.
It turns out that Banks still lack the statutory power to do arrangements and this notwithstanding the use of plan of arrangement-type powers in the Canada Business Corporations Act has made it the predominant way mergers and acquisitions and restructuring transactions are implemented. Apparently, in 1992, the various Financial Institutions Acts including the Bank Act were drafted to incorporate substantially all of the corporate provisions from the CBCA. However, a decision was made not to permit plan of arrangement-type powers in the F.I Acts as there was a concern that it could fetter or override the Superintendent of Financial Institution’s powers and discretion.
There’s a bit more at https://www.torys.com/en/our-latest-thinking/publications/2023/04/2025-review-of-the-financial-sector-statutes
Bottom line: it’s not clear to me now how the CWB prefs might end up as NA issues, or what happens to CWB.PR.B before April 2029.
Nice research peet!
So maybe the share exchange gives CWB.PR.B some upside that prefs usually don’t get in plan of arrangement. Hmmm.
Recent high was 22.25, closed 23.00 on news, yields 6.923% (just reset) at that level, has upside to 25.50 if called.
I own a lot of these but that is a pretty attractive wager.
Looking at the prospectus (at https://www.cwb.com/-/media/cwbgroup/documents/IR/Pref-Share-info/prospectus-supplement.pdf), the Series 6 preferred shares are redeemable at $25.50. However, CWB.PR.B is the Series 5 preferred share, and there is no such redemption provision.
The same is true of the Series 9 CWB.PR.D shares – no such redemption provision.
Hey cbh.
Confirmed your read — I was wrong. Thanks, I learned something!
So if no redemption provision, 5 years of CWB.PR.B +276 6.923% YTW at $23 vs. NA.PR.S (just reset too) +240 6.191% at $23.46. DBRS just confirmed NA ratings too.
Seems a good thing, no?
“I was wrong. Thanks, I learned something!”
Says almost nobody anywhere on the internet. How do I hit the “like” button twenty times here?
Stusclues, I have so much practice with my wife that it comes naturally on the interwebs.
Thanks everyone for the carefully considered and researched answers on this topic.
I do own a fair amount of CWB.PR.B, and I mention this only because it is this website (including the comments section) that had provided me the knowledge and comfort level to buy them – or any pref shares for that matter.
Wonderful to be able to share the experience and knowledge here.
Cheers
The Management Information Circular in connection with the Shareholders’ Meeting Sept. 3 2024 is now available on the CWB website.
It answers the question originally posed by CaddilaMan as to what happens to the existing Prefs.
The short answer is that the prefs will continue to exist as prefs of the “new” CWB.
The preferred shareholderrs are not voting at the meeting.
https://www.cwb.com/-/media/cwbgroup/documents/IR/Special-Meeting-of-Common-Shareholders/Circular—Special-Meeting.pdf
The first page of Appendix C spells out the proposed capital structure and the authorised capital. This will include, inter alia, an unlimited number of First Preferred shares, up to a maximum of $1,000,000,000. The language in the proposed new By Law is identical to what is now found in CWB’s By-Laws.
Correction: Read “THAT language is …identical”
Hey peet. Thx for this.
“inter alia” — my lawyer sonar pinged lol.
I could make sense of CWB.PR.B at $23-ish but can’t at $24.20, 6.60% yield, and no windfall or leverage in the takeover vote. Priced for perfection IMHO.
Sonoffergus, look at the bright side! Given how the universe of existing NVCC prefs seems to be rapidly shrinking , with no indication that OSFI’s “encouragement” will abate, you may have the distinction in 2029 of owning one of the last Bank NVCC issues still standing! Admitttedly a bit tongue in cheek but if you are into long-term income from Bank prefs the trend is not your friend. Right now the the only others 100% “safe” from call at least until 2029 are LB.PR.H, NA.PR.S,and RY. PR.S.
Update: https://www.newswire.ca/news-releases/national-bank-and-canadian-western-bank-announce-cwb-tier-1-capital-reorganization-861979991.html
Mentions the preferred shares:
‘CWB has called a meeting of the (i) holders of the Series 5 Preferred Shares, and (ii) holders of the Series 9 Preferred Shares to approve certain amendments to the terms of the Preferred Shares (the “Preferred Share Amendments”). […]’