Q: Hello 5i Team
I currently own shares of Canadian Western Bank (CWB) and National Bank (NA) in my TFSA.
The yield on the shares of CWB are approximately 1 % higher than yield on NA
The announced takeover of CWB by NA is at at a share ratio of 0.45 shares NA per 1 share CWB.
NA announced an public offering of NA shares at $112.30 concurrently with the takeover. This implies a price of 0.45 x $112.30 = $50.54 for shares of CWB.
This morning share of NA are trading below the offering price (~$110.40) and the share price of CWB are trading around $42.35 which implies an exchange ratio of 0.39.
Is there an opportunity to acquire shares of CWB at a small discount to the takeover premium (with the risk of the deal not being approved by the government) in the anticipation of the takeover and exchange for shares of NA or should I just let the deal close in 18 months (end of 2025)?
I would receive marginally more dividend income from the share of CWB while waiting for the deal to close.
I also think there will be selling pressure on CWB for the next two weeks as investors may be inclined to sell CWB in anticipation of the June 25 change in capital gains inclusion rates.
Thank you
I currently own shares of Canadian Western Bank (CWB) and National Bank (NA) in my TFSA.
The yield on the shares of CWB are approximately 1 % higher than yield on NA
The announced takeover of CWB by NA is at at a share ratio of 0.45 shares NA per 1 share CWB.
NA announced an public offering of NA shares at $112.30 concurrently with the takeover. This implies a price of 0.45 x $112.30 = $50.54 for shares of CWB.
This morning share of NA are trading below the offering price (~$110.40) and the share price of CWB are trading around $42.35 which implies an exchange ratio of 0.39.
Is there an opportunity to acquire shares of CWB at a small discount to the takeover premium (with the risk of the deal not being approved by the government) in the anticipation of the takeover and exchange for shares of NA or should I just let the deal close in 18 months (end of 2025)?
I would receive marginally more dividend income from the share of CWB while waiting for the deal to close.
I also think there will be selling pressure on CWB for the next two weeks as investors may be inclined to sell CWB in anticipation of the June 25 change in capital gains inclusion rates.
Thank you
5i Research Answer:
While there is an arbitrage opportunity, there are also risks. If CWB is already owned we would not see the need to add more and increase risk. With the takeover news, we doubt the capital gain issue will result in much pressure on its own. Liquidity has increased dramatically because of the arbitrage and any sellers have had plenty of chances to get out. With no deal CWB could decline 50% or more, and for a 'safe' bank holding we do not think that means add more.