PrivateBancorp Holders Should Vote Down CIBC Takeover

(Bloomberg Gadfly) -- Donald Trump's presidential victory is a gift that keeps on giving to bank investors. For shareholders of one regional lender, it even offers the possibility of a sweeter takeover payout.

Bank stocks have been on a tear since the Nov. 8 election, driving up the KBW Bank Index more than 18 percent on optimism the president-elect will deliver on promises to loosen financial rules and implement policies to stimulate the U.S. economy, which should lead to higher interest rates. The KBW Regional Bank Index has outperformed the broader gauge, soaring 21.6 percent in part because those lenders stand to reap the lion's share of benefits from any potential deregulation. 

The uplift in valuations presents an opportunity for investors in Chicago-based lender PrivateBancorp Inc., the parent of PrivateBank, which accepted a $3.8 billion acquisition offer from Canadian Imperial Bank of Commerce back in June. Shareholders are set to vote on the deal next Thursday, Dec. 8, and there's a compelling argument for why they should oppose it. 

Take a look at how PrivateBancorp's peers have performed since June 28, the day before its deal with CIBC was announced:

Assuming there was never a transaction and PrivateBancorp had simply risen in line with other regional banks, the stock would now be worth $52.49 -- nearly 8 percent more than CIBC's offer price, which was worth roughly $48.56 as of Thursday's close. PrviateBancorp could even be valued higher than that -- at $53 -- if the Bloomberg-calculated forward P/E multiple for the industry of 18.8 is applied to the bank's 2017 earnings estimates. 

At least one shareholder, Glazer Capital LLC, is trying to convince others that they collectively deserve a better offer. On Thursday, it penned a letter to fellow PrivateBancorp shareholders stating that the deal as it stands "woefully shortchanges" investors, especially considering the "seismic shift" in regional bank valuations. Proxy adviser Institutional Shareholder Services Inc. has also recommended that investors vote against the deal on the basis that the company could be worth more even without a takeover offer on the table. Those two opinions sent PrivateBancorp's shares 4.3 percent higher to $48.78, sending the deal spread negative for the first time as the stock traded through the offer price. 

Investors should feel emboldened: They're in a position to essentially play with house money. Even if they vote the deal down next week, it isn't going to disappear. According to the merger agreement, the shareholder meeting can be adjourned and rescheduled if it doesn't gain sufficient support so they'll have another chance if valuations dramatically change. 

At the end of the day, PrivateBancorp shareholders face two likely scenarios from holding out, either one of which would be a win for them. On the one hand, CIBC could sweeten its bid. But even if it doesn't and the deal falls apart, PrivateBancorp should thrive as an independent company in an environment of rising interest rates, which is the best possible safety net there is. Shareholders should roll the dice.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story: Gillian Tan in New York at gtan129@bloomberg.net.

To contact the editor responsible for this story: Beth Williams at bewilliams@bloomberg.net.