Market Overview

Making Sense Of The Enormous BMO-GE Deal

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  • Bank of Montreal (USA) (NYSE: BMO) announced it will acquire General Electric Company (NYSE: GE)'s Transportation Finance Business in the US and Canada.
  • Analysts at CIBC note the deal is a "positive" for Bank of Montreal.
  • The deal is expected to be accretive (three percent annualized) to Bank of Montreal's 2016 earnings.

Bank of Montreal announced it has reached an agreement to acquire General Electric's Transportation Finance business in the US and Canada. The acquisition is structured as an asset purchase and the bank plans on financing the deal (total transaction cost between $12 billion and $13 billion) organically with no new equity required.

In a report published Thursday, CIBC analyst Robert Sedran commented that in terms of financial implications, the deal is a "positive" for Bank of Montreal and will be immediately accretive by three percent annualized to the bank's fiscal 2016 adjusted earnings.

Under General Electric's leadership, the segment held the top market share and was the largest financier to the commercial truck and trailer segment in North America. The segment serviced the entire supply chain from manufacturer all the way to the end-user.

Sedran continued the deal is also strategically "positive" as the Canadian based bank gains more exposure to the US economy which has a better outlook compared to Canada's. The deal also gives Bank of Montreal exposure to the "more robust" commercial side of the business that carries a "much better" margin versus indirect auto lending.

"Given the reality of bank capital standards and the competitive nature of acquisitions in all markets (but especially in the United States), we have become accustomed to noting positive strategic implications with at best neutral (and sometimes negative) financial ones," Sedran wrote. "The fact that this transaction combines positives on both fronts is noteworthy."

Bottom line, even though the acquired segment already ranks as the market share leader, the commercial lending business is still showing "good trends." Moreover, with Bank of Montreal "restoring the full ability" to grow a franchise that has been marked for sale, the analyst is expecting "solid" growth moving forward.

Shares of Toronto-listed Bank of Montreal remain Sector Perform rated with a C$78 price target.

Latest Ratings for BMO

DateFirmActionFromTo
Sep 2019UpgradesUnderperformNeutral
Jan 2019DowngradesNeutralUnderperform
Aug 2018UpgradesHoldBuy

View More Analyst Ratings for BMO
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Posted-In: Bank of America BMO CIBC Robert Sedran Toronto Stock ExchangeAnalyst Color Analyst Ratings

 

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