CIBC to acquire Oppenheimer & Co. for $525 million
NEW YORK (AP) _ Canadian Imperial Bank of Commerce plans to strengthen its presence on Wall Street with a deal to buy Oppenheimer & Co. for $525 million _ the latest in a merger frenzy that has swept the securities industry as the firewall crumbles between commercial banks and brokerages.
Canadian Imperial, the second-biggest bank in Canada, said Tuesday that the acquisition will help it achieve a critical goal of establishing a strong stock sales and research operation here that will complement its CIBC Wood Gundy investment banking business.
``This is an excellent strategic acquisition for CIBC and positions us for continued growth and expansion throughout the North American marketplace,″ said Al Flood chairman and chief executive of Canadian Imperial Bank. ``The combined strengths of CIBC Wood Gundy and Oppenheimer will enable us to provide a more complete range of financial services to our clients.″
New York-based Oppenheimer, the second-largest private securities firm and No. 30 overall, has been considering a number of prospective partners since late last year, including Bayerische Vereinsbank of Germany and PNC bank of Pittsburgh.
The Toronto-based bank plans to combine the closely held brokerage with its CIBC Wood Gundy unit. The new entity will be called CIBC Oppenheimer Corp. and will be headed by Michael Rulle, chairman and chief executive of CIBC Wood Gundy. Oppenheimer Chairman Stephen Robert and President Nathan Gantcher, who together own almost 40 percent of that firm, will be vice chairmen.
Executives said no layoffs are planned because the deal was driven by the strategic benefits it offered and opportunities for revenue enhancement rather than by a need to reduce expenses. The combined firm will have 8,000 employees and annual revenues of $3.5 billion.
CIBC’s investment banking operations in the United States focus on underwriting junk bonds, arranging loan syndication financing and putting together derivative transactions. Oppenheimer underwrites stocks for medium-sized companies and advises them on mergers. It also provides stock market research, asset management and brokerage services.
John Hunkin, president of CIBC Wood Gundy, said the firm had considered building its equities business on its own, but decided that the best move would be to look for a partner with those strengths. Oppenheimer was the best bet to achieve the capabilities quickly and also provided the synergies that the firm was looking for, he said.
``This deal was about getting the right fit,″ Hunkin said. `` We think the fit’s terrific and we think it’s really going to work for us. This is the direction the industry was moving in.″
The deal is the latest in a wave of brokerage acquisitions by big commercial banks eager to build lucrative franchises on Wall Street. The merger boom was prompted by a relaxing of barriers between the securities and commercial banking industries in the United States. Banks on the hunt for new sources of revenue have found brokerages and investment banks very attractive bargains as stock market profits boom.
While Canadian Imperial Bank had been interested in finding a partner to build a U.S. stock underwriting and mergers advisory business, Oppenheimer was looking for a company with significant capital and an international presence that could help it expand.
``This is an ideal combination,″ said Oppenheimer’s Robert. ``We think we are going to be able to offer clients a broader range of higher quality product and reach more clients that we have before.″
Under the deal, CIBC will pay $350 million in cash for Oppenheimer. It also will provide a $175 million pool to be paid out over three years to help retain key executives from the firm. The deal, which is subject to regulatory approval, is expected to be completed by the end of the year.
CIBC Wood Gundy said the acquisition positions it particularly well within the consolidating financial services industry and gives it a stronger foothold on Wall Street, which foreign firms feel is important for competing successfully on a global level.
``We believe that there will soon be only 20 or so firms that will have a real equity presence in the United States and only a few of those will be able to combine that capability with the strength in credit products normally associated with commercial banking,″ Rulle said.
The deal follows a string of mergers on Wall Street, the most prominent being the recently completed combination of Morgan Stanley Group Inc. with Dean Witter Discover & Co. It also underscores the march on Wall Street by commercial banks.
The deals so far include: NationsBank Corp.’s planned $1.2 billion acquisition of Montgomery Securities; BankAmerica Corp. proposal to acquire Robertson Stephens & Co. for $540 million; A $600 million Swiss Bank Corp.-Dillon, Read & Co. combination; and a $1.7 billion transaction between Bankers Trust New York Corp. and Alex. Brown Inc.