Friday, December 31, 2010

The Perfect Arbitrage (NYSE: MI) (NYSE: BMO)

NEW YORK - Marshall Ilsey, the recently acquired Wisconsin area based bank by Canadian Bank of Montreal on December 17 has seen its shares rise nearly 20%. It is undecided if BMO (pronounced BeeMO) will be renaming the bank with its iconic Canadian name, keeping the historic MI name or using its Harris Bank name. BMO has owned Harris Bank since 1984 which is the third largest bank in Chicago. Canadian Banks often go through great lengths to hide the fact that their bank is Canadian in the U.S. For instance most Americans are likely unaware that the TD in TD Bank stands for Toronto Dominion which of course is the location of Canada's capital city.

MI currently trades at $6.95 while BMO trades at $57.76. Given the conversion rate that will take place if the merger goes through then each MI share has an actual value of $7.26 meaning it trades at 4.4% below its conversion value. The discount often goes down as the merger date grows closer. For instance when the merger deal was announced and the day after the discount was 6% which is higher than today's price.

The Wells Fargo and Wachovia deal can be seen as a comparable to this current deal. Wells Fargo acquired Wachovia in 2008 with stock and similar to the Wachovia/Wells Fargo deal, MI shareholders will need to approve the deal with a vote.

To see the full BMO/MI report click here.

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