Laurentian Bank of Canada has decided to embark on a strategic review of its business, potentially leading to a sale that could attract interest from larger Canadian banks. The announcement caused a significant jump in the bank’s shares, which rose by 26% to reach 42.32 Canadian dollars ($31.98) at 11:49 a.m.
The review, being conducted by Laurentian Bank’s board of directors and management team, aims to explore options that would maximize value for shareholders and stakeholders. While the specific direction of the review has not been disclosed, National Bank of Canada analyst Gabriel Dechaine believes that a potential sale is a viable option. In such a scenario, all six of Canada’s major banks could be considered as potential suitors.
Dechaine highlights the Bank of Nova Scotia and Toronto-Dominion Bank as particularly strong candidates. The Bank of Nova Scotia’s interest in Quebec’s market share and desire to reduce the proportional earnings contribution from its international segment make it an attractive contender. Meanwhile, Toronto-Dominion Bank’s substantial excess capital position and uncertainties regarding its future capital deployment strategy following the cancellation of its $13.4 billion merger with U.S.-based First Horizon also position it as a potential acquirer of Laurentian Bank.
As Laurentian Bank explores its strategic options, the outcome remains uncertain, but the possibility of a sale has certainly sparked considerable interest among investors and analysts alike.
Acquiring Laurentian: A Potential Opportunity for Earnings Growth
The possibility of acquiring Laurentian Bank presents an opportunity for significant earnings accretion, according to an analyst. The addition of Laurentian’s business could result in noteworthy expense and revenue synergies, potentially leading to single-digit earnings per share accretion.
Laurentian Bank announced on Wednesday its robust capital and liquidity position, highlighting the strength, stability, and diversification of its funding and deposit base.
Should Laurentian Bank be up for sale, the analyst believes that a book value acquisition multiple would be a reasonable measure. In this case, the estimated acquisition price is around 2.6 billion Canadian dollars, equivalent to approximately $1.96 billion.
Naturally, the acquisition comes with its fair share of risks.
The analyst points out that Laurentian Bank falls short in certain areas, primarily having a weaker core deposit franchise and an above-average exposure to commercial real estate lending.
It is worth noting that Canada’s ‘Big 6’ banks have been noticeably active in the M&A arena in recent months. One prominent example is Royal Bank of Canada’s cash acquisition of HSBC Canadian arm for about $10.1 billion in November.
Considering the challenging growth outlook for Canadian banks and Laurentian Bank’s stock price consistently remaining below book value, an unsolicited bid along with other factors may have compelled the board to consider selling.
