Commerce Bancorp Sold to TD Bank for $8.5 Billion

Implications: TD Bank is paying a 7% premium over Commerce's closing share price on 10.1.07 of $42.37 and the deal is expected to be completed by April 2008. TD Bank will incur a pretax restructuring charge of approximately $490 million to expand market share in the U.S. and as a result 2008 and 2009 earnings will be diluted. The deal is expected to generate cost synergies of approximately $310 million by 2009. The deal also includes a break fee of $330 million, which could open the door to rival bidders for Commerce who may be interested in expanding branch operations in Commerce's footprint. Commerce will incur an after-tax charge of $150 million in an effort to reduce its exposure to changes in interest rates. Commerce's branch expansion plans was hampered as a result of its high exposure in the mortgage market, which was key to profit growth and due to federal inquiries into possible insider trading by its former CEO, Vernon W. Hill II,  who was considered the lifeline of the bank. 

Analysis: Commerce Bancorp has over 400 branches in NJ, NY, PA, DE, CT, FL and Washington, DC.  Commerce had established itself as "America's most convenient bank," by offering a full array of financial products and extended hours.  Commerce was growing through branch expansion in prime retail sites and opened branches throughout NY and other areas, however, after the bank came under scrutiny from federal regulators for possible insider trading by its former CEO, which eventually led to his ouster, the bank seemed to lose some of its fanfare and wasn't able to bounce back after the scandal, which ultimately led to the TD Bank and   Commerce deal for $8.5 billion.

1.  Integration risks may be high for the TD Bank & Commerce deal versus other bank deals because the culture of the organization may change substantially and Commerce also has high exposure in the mortgage market through loans and securities

2.  TD Banknorth is the U.S. arm of TD Bank which already has a presence in NJ and Philadelphia, where Commerce Bancorp already has existing branches, so branch reductions may occur to cut costs and streamline operations

As cross-border acquisitions become easier for Canadian firms as a result of a strong Canadian dollar, Canadian banks are looking across the border at U.S. banks for growth because Canadian banks are forbidden from merging with each other.  TD Bank's presence in the U.S. will double after the acquisition of Commerce and TD Bank will rank in the Top 10 largest banks in the U.S.