Last week, BMO Financial Group, the corporate parent of Chicago-based Harris Bank, announced it had reached terms to acquire Milwaukee-based Marshall & Ilsley Corp., Wisconsin’s largest bank, in an all-stock transaction valued at about $4.1 billion.
The transaction is expected to close prior to July 31, 2011. At that time, M&I will merge with one of BMO’s subsidiaries.
"The acquisition is consistent with our strategy to strengthen our North American businesses,” said Bill Downe, president and chief financial officer of BMO Financial Group. “It transforms BMO’s competitive position in the U.S. Midwest by bringing together highly complementary businesses that align well with BMO’s retail, commercial, and asset/wealth management businesses in the U.S. It also increases scale and provides strong entry into other attractive markets, including Minnesota, Missouri, and Kansas, and expansion in Indiana and Wisconsin.”
Each share of M&I will be exchanged for 0.1257 shares of BMO upon closing. The transaction values each share of M&I stock at $7.75, or an aggregate amount of approximately $4.1 billion in Bank of Montreal common shares.
As part of the agreement, BMO will purchase M&I’s Troubled Asset Relief Program (TARP) preferred shares at par plus accrued interest – with full repayment to the U.S. Treasury immediately prior to closing. M&I’s existing warrants held by the U.S. Treasury will also be purchased by BMO.
Mark Furlong, who is currently chairman, president and CEO of M&I, will become CEO of the combined U.S. Personal and Commercial banking business, based in Chicago. Furlong will report to Downe and will join BMO’s Management Committee.
BMO anticipates about $250 million in cost savings from the transaction. Those synergies will be realized through reduced management and administration costs and from combining the technologies and processing operations of the two organizations, said Tom Flynn, BMO’s chief financial officer.
“Branch overlap is relatively modest,” Flynn said. “We like that – this expands our distribution footprint.”
During a press conference last week, neither Furlong nor Downe would specify if there would be local job losses because of the merger.
“There will be opportunities for future growth. There will be more employment in some areas,” Downe said. “And there will probably be some rationalization of some jobs.”
If there are jobs that will be eliminated because of redundancies, they will not necessarily be made at M&I, Downe said.
“The adjustments that are necessary will be taken evenly across the organization,” he said.
Additional cost savings will be realized by combining data and call centers, Downe said.
BMO is now creating a team to work the banks through the merger transition – once that transition is finished the merged organization will work to determine the right roles for management from each bank, Downe said.
“We’ll be putting people in key roles and transitioning others,” he said.
During the due diligence phase, BMO officials reviewed more than 2,500 loan profiles in M&I’s offices and the bank believes it has a solid plan for future losses. The bank has formed a special team to examine M&I’s troubled assets, and is likely to divest itself of some of M&I’s commercial real estate loans.
“Their portfolio has a lot more commercial real estate than we’re comfortable with,” Downe said. “Our plan is to reduce that over time.”
It is unclear what the merged bank will be named – Downe said BMO is still weighing its options. BMO will make a decision before the transaction closes, he said.
Also upon closing, Ellen Costello will be CEO of Harris Financial Corp. and U.S. Country Head for BMO with governance oversight for all U.S. operations. She will report to. Downe and will be a member of BMO’s Management Committee.
Furlong said, "This transaction is good news for M&I’s shareholders, customers, employees and the communities we serve. It will position us with the capital strength and scale to enhance our commitment to customers and communities. This combination is about two companies that share a vision of building strong long-term customer relationships. BMO has a diversified business mix with a strong reputation for being a consistent lender."
