M&I Shareholders Approve Merger

On Tuesday, the shareholders of Marshall & Ilsley Corporation (MI) approved its merger deal with Canada-based Bank of Montreal (BMO - Snapshot Report). The percentage of shareholders who consented to the impending merger was not disclosed.

Additionally, the U.S. Treasury Department provided a proxy giving their assent to the merger as it holds the Senior Preferred Stock of the company.  However, M&I’s merger still requires all the regulatory consents to materialize. The deal, which is expected to be completed by July 31, 2011, does not require the approval of the BMO shareholders.

M&I’s merger with BMO was announced in December 2010. The all-stock transaction is valued at $4.1 billion. Under the terms of the deal, M&I’s shareholders will get 0.1257 share of BMO for each share of the company. The transaction is valued at $7.75 per share or 34% premium to the closing price of the company’s share on December 16, 2010.

BMO will also acquire M&I’s Troubled Asset Relief Program (TARP) shares worth $1.7 billion and will repay the TARP money before the closure of the deal. Additionally, BMO would assume all the long-term liabilities of $5.4 billion and purchase the company’s remaining warrants that are held by the U.S Treasury department as part of its participation in the TARP.

Following M&I’s merger with BMO, the latter will be able to extend its reach in the lucrative U.S. market. The deal would also add 374 branch locations to BMO’s empire, increasing the branch count to 695 in the U.S.

Our Viewpoint

We believe that the approval of M&I’s merger with BMO was expected as the shareholders view this offer as the best deal they could get. The company’s inability to move out of its problem assets was taking a toll on its financial results for the last several quarters. So, the merger agreement will expectedly provide some relief to the investors.

In fact, consolidation has become a norm in the banking sector after taking a significant hit during the financial crisis. Earlier this week, M&T Bank Corporation (MTB - Analyst Report) announced the completion of the acquisition of Wilmington Trust Corporation for about $351 million. Further, in April 2011, New Alliance Bancshares Inc. was acquired by First Niagara Financial Group Inc. (FNFG - Snapshot Report) in a stock-and-cash deal that was valued at $1.5 billion.

Currently, M&I’s shares retain a Zacks #3 Rank, which translates into a short-term Hold rating, whereas BMO retains a Zacks #2 Rank, which translates into a short-term ‘Buy’ rating.

Read the full analyst report on BMO

Read the full analyst report on MI

Read the full analyst report on FNFG

Read the full analyst report on MTB