TORONTO Canadian Imperial Bank of Commerce (CM.TO) said on Thursday it had raised its takeover offer for PrivateBancorp Inc PVTB.O by 20 percent to about $4.9 billion, after some of the Chicago-based lender's shareholders opposed an initial bid.
PrivateBancorp's board has backed CIBC's revised offer.
The move came ahead of a June 29 deadline for the deal to be approved and about nine months after the Canadian bank made its initial $3.8 billion stock-and-cash offer. If successful, the acquisition would be CIBC's biggest.
The higher bid shines a light on CIBC's desire to diversify into the U.S. market yet highlights investor worries about whether the bank might be paying too much for the asset. CIBC is the most Canada-focused of the country's major lenders.
"I am not too pleased that they are paying 20 percent more now than then. I think they got trapped," said John Kinsey, portfolio manager at Caldwell Securities, which owns CIBC stock.
"I think there is a risk that maybe they did overpay. I think the market is telling us that."
CIBC shares dropped 2.6 percent, while PrivateBancorp shares jumped 5 percent to $59.00.
"It raises some definite red flags on the Street. Investors are concerned that they might be overpaying," said Colin Cieszynski, chief market strategist at CMC Markets Canada.
"Are they chasing something at the top of the market?" he said. "What happens if you pay up for this and then the U.S. bank stocks have a correction?"
PrivateBancorp shares have rallied since the initial offer and further since Donald Trump was elected U.S. president. The stock has benefited from upbeat sentiment as investors counted on potential tax cuts, an easing in financial regulations and higher interest rates to boost the U.S. banking sector.
PrivateBancorp postponed a shareholder vote on the deal in December because some investors resisted on the grounds that the business was undervalued in light of the new developments.
"I like the new offer. Without a competing bid, it seems like full-and-fair value," said David Neuhauser, managing director of U.S. hedge fund Livermore Partners, which owns PrivateBancorp shares.
"It's a good deal for all and it provides more value for PrivateBancorp shareholders," he added. "I'm glad to see this get resolved before the summer."
CIBC and PrivateBancorp expect the deal to close in the second quarter.
PrivateBancorp's shareholders must approve the deal in a mid-May vote.
(Reporting by John Tilak and Fergal Smith in Toronto and Sruthi Shankar in Bengaluru; editing by Paul Simao and Cynthia Osterman)