M and A
CIBC Expands US Footprint With American Century Deal
Canada-based CIBC is planning to acquire a 41 per cent interest in the US asset manager American Century Investments, in a deal worth around $848 million.
In taking over the minority interest CIBC is buying out JP Morgan Chase & Co’s share in Kansas-based American Century, which manages around $112 billion in assets. The deal is pursuant to a shareholder agreement using a pre-determined valuation methodology conducted by an independent third party, CIBC said in a statement.
The all-cash transaction is expected to be immediately accretive for CIBC and contribute approximately 15 cents per share of earnings in 2012 on a cash basis. For the second quarter ended 30 April 2011, New York- and Toronto-listed CIBC reported net income of $678 million and cash diluted EPS of $1.62.
The purchase is expected to close within 90 days, subject to regulatory approval.
The deal will give CIBC 10.1 per cent of American Century Investments' voting rights, and two CIBC representatives will join American Century’s 10-person board. American Century’s major shareholder is the Stowers Institute for Medical Research.
On the decision to enter into the agreement, both firms cited the business synergies and opportunities to increase their presence in diverse geographical markets.
For ACI, part of the draw is to bring its investment management services to non-US clients, a key component of its strategy, said president and chief executive Jonathan Thomas. For CIBC meanwhile, the tie-up expands its international asset management platform.
"Demographic trends in the US are positive and savings rates are on the rise. As boomers continue to advance towards retirement age, the increased demand for personal retirement solutions make this opportunity attractive,” said CIBC president and CEO Gerry McCaughey.
A number of Canadian firms are prominent in the US wealth market, including BMO Financial Group and Royal Bank of Canada. RBC only recently announced it was refocusing its US efforts entirely on the wealth and capital markets divisions, when it entered a definitive agreement to sell its retail business in the country to PNC Financial Services Group for around $3.62 billion.