Canadian Imperial Bank of Commerce (CIBC) announced today that it has reached an agreement to sell a significant portion of its majority stake in CIBC FirstCaribbean (“FirstCaribbean”) to GNB Financial Group Limited (“GNB”). Under the terms of the agreement, GNB is acquiring 66.73% of FirstCaribbean shares from CIBC for total consideration of US$797 million, which represents a company valuation of approximately US$1,195 million, subject to closing adjustments to reflect certain changes in FirstCaribbean’s book value prior to closing.
“We continue to build a relationship-oriented bank for a modern world, and this strategic transaction will sharpen our focus on our core businesses,” said Shawn Beber, Senior Executive Vice-President, General Counsel and Corporate Development, CIBC. “FirstCaribbean is a well-performing business and we believe this transaction will support its long-term growth prospects while creating value for its stakeholders as well as those of CIBC. As an investor in FirstCaribbean, we intend to work closely with GNB Financial Group to support continued growth for the business.”
“FirstCaribbean will remain the strong entity it is today, committed to servicing its clients in the region,” said Jaime Gilinski, Chairman of GNB Financial Group Limited. “I have been impressed by the strength and stability of FirstCaribbean and am excited about its prospects for the future.”
GNB is wholly owned by Starmites Corporation S.ar.L, the financial holding company of the Gilinski Group. The Gilinski Group has banking operations in Colombia, Peru, Paraguay, Panama, and Cayman Islands with approximately US$15 billion in combined assets.
The total consideration is comprised of approximately US$200 million in cash and secured financing provided by CIBC for the remainder. Following the close of the transaction, CIBC will remain a 24.9% minority shareholder of FirstCaribbean and will benefit from various minority shareholder protections, as well as liquidity rights in respect of its minority stake.
CIBC’s Common Equity Tier 1 capital ratio is expected to improve by over 40 bps on closing. The transaction is expected to result in an after-tax loss of approximately C$135 million that will be recognized in the fourth quarter of 2019, representing a reduction of the carrying value of goodwill related to FirstCaribbean. Upon closing, CIBC will realize accumulated foreign currency translation gains relating to FirstCaribbean, estimated to be approximately C$280 million based on exchange rates as of 31 October 2019, and will also recognize the impact of any closing adjustments and its minority stake.
The agreement is expected to be completed in 2020, subject to satisfaction of customary closing conditions, including receipt of regulatory approvals, and both CIBC and GNB are working closely to ensure a smooth transition for clients and team members.
CIBC
Some inferred points of interest looking at the numbers provided in the News Release. The main one being that, with a $135 Million write-down, CIBC realized a value (price) significantly less that they thought it was worth (or had invested in it). As it is not clear whether the $135 Million is net of the expected $280 Million foreign currency translation gain expected by CIBC, the “real” loss in Value to CIBC could really be in the $400 Million range. Additionally, there must be a total other ownership in the enterprise representing a “missing” 8.37% ownership after one does a convoluted calculation. One thing seems clear, this was never a great investment for CIBC. They paid more for their shares that they were worth and/or lost a lot of money running the operation. One trusts that GNB Financial Group has really done their homework well or we will be reading another such Press Release sometime in the future. Good luck!
Where and how did they come about this valuation? Keep in mind these banks were cutting service opeations due underperformance (closed out locations). It seems like the local government will be the hook or increase of banking fees?