BMO Completes M&I Acquisition

The acquisition of Marshall & Ilsley Corporation (MI) by Bank of Montreal (BMO - Snapshot Report) finally drew to a close on Tuesday, following BMO’s repayment of $1.715 billion of Troubled Asset Relief Program (TARP) money that M&I had borrowed from the U.S. Treasury in 2008. Along with this repayment, which was a part of the acquisition deal, BMO also purchased $3.3 million worth of warrants that were issued to the U.S. Treasury by M&I and paid $11.9 million as accrued dividends.

The acquired M&I offices (about 190 in total) would be renamed as BMO Harris Bank, after BMO integrates it with Chicago-based Harris Bank, which BMO owns. The integration will likely take nearly 18 months.

Furthermore, M&I’s Chairman and CEO, Mark Furlong, has been named as the president and CEO of BMO Harris Bank. Mr. Furlong commented that within the next two years, approximately $5 billion will be made available to small and medium businesses in Arizona, Midwest and Florida.

In June, the M&I-BMO acquisition agreement had received all regulatory approvals, following the M&I shareholders’ approval to the merger deal in May. The U.S. Treasury Department had also provided a proxy giving their assent to the merger as it held the Senior Preferred Stock of M&I.

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

The acquisition would enable BMO to increase its presence in the U.S. private banking area. Moreover, with M&I’s institutional trust and asset management businesses, BMO will be able to enhance its global presence. M&I’s inability to ward off its problem assets was taking a toll on its financial results for the last several quarters. So, the merger agreement will likely provide some relief to the investors of M&I as well.

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