Canadian Imperial Bank of Commerce (CM - Free Report) recently announced a deal to divest 66.7% stake in CIBC FirstCaribbean to GNB Financial Group Limited for $797 million. The acquiring company is wholly owned by Starmites Corporation Sàrl, which is the financial holding company of The Gilinski Group.
Of the deal value, $200 million will be paid in cash and the rest will be provided through secured financing by Canadian Imperial. The deal is subject to customary closing conditions, including regulatory approvals.
Following the deal’s closure, expected in 2020, Canadian Imperial will own 24.9% stake in CIBC FirstCaribbean, along with minority shareholder protection and liquidity rights.
Outcome of the Deal
Canadian Imperial’s Common Equity Tier 1 capital ratio is likely to improve by more than 40 basis points, following the transaction’s conclusion. Further, it will realize accumulated foreign currency-translation gains amounting to C$280 million ($212 million) relating to CIBC FirstCaribbean. This was calculated using exchange rates as of Oct 31, 2019.
Also, the divestiture is anticipated to result in an after-tax loss of nearly C$135 million ($102 million), to be recognized in the current quarter. This marks the decrease in CIBC FirstCaribbean’s carrying value of the goodwill.
Canadian Imperial’s recent deals are in sync with its efforts to restructure the company’s businesses. It entered into the above-mentioned agreement in a bid to counter turbulence in the Caribbean market.
Earlier in 2018, Canadian Imperial had planned to reduce its stake in CIBC FirstCaribbean to 73%, by selling through initial public offering. However, the move was unsuccessful.
In July 2019, the company signed a deal to acquire Cleary Gull, with an aim to expand its presence in the United States. Also, in 2017, Canadian Imperial acquired PrivateBancorp, Inc., the Chicago, IL-based middle market commercial bank.
Shares of Canadian Imperial have gained 16.6%, so far this year, outperforming the industry’s rise of 5.3%.
Currently, Canadian Imperial carries a Zacks Rank #4 (Sell).
You can see the complete list of today’s Zacks #1(Strong Buy) Rank stocks here.
Apart from Canadian Imperial, other financial institutions are also streamlining their businesses. In recent months, PNC Financial (PNC - Free Report) , Stifel Financial , and Ally Financial (ALLY - Free Report) have closed deals that are expected to further strengthen their operations.
Note- 1 CDN = $0.75729
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