BMO shares slide deeper following M&I takeover

By Reuters
Posted Dec. 20, 2010 at 3:53 p.m.

Shares of Bank of Montreal extended their slide on Monday, falling 2.2 percent as analysts chopped their share-price targets following the bank’s $4.1 billion deal to purchase Wisconsin lender Marshall & Ilsley Corp.

BMO’s stock plunged 6.5 percent on Friday after it announced the transaction as investors worried that the Toronto-based lender had overpaid for a troubled asset.

The bank will issue about C$800 million in new shares to help fund the acquisition, and will also pay $1.7 billion to the U.S. government to pay back bailout money.

BMO said the deal would reduce its profit in the first year after the deal closes, and add 2 percent to profit by 2013.

Barclays Capital analyst John Aiken downgraded the stock to “equal weight” from “overweight” and chopped his 12-month share-price target on BMO to C$60 from C$70.

“Given the integration risk associated with the size of the deal in addition to the more negative outlook implied by management’s forecasts than the market was anticipating, we believe that BMO’s relative valuation will be impaired until it can demonstrate to investors that the deal will be successful,” Aiken said in a note.

RBC Dominion Securities analyst Andre-Philippe Hardy said the deal would be negative for the shares in the near term due to the impact on earnings and capital and the dilutive impact of the stock issue. He cut his price target to C$68 from C$73.

However, analysts said the deal makes sense in the longer term, and would ultimately reward patient investors as it will add significantly to the presence of BMO’s Chicago-based Harris Bank.

“The deal adds scale and creates potential value to be realized over time,” CIBC World Markets analyst Robert Sedran wrote. However, given the near-term dilution, he lowered his price target to C$63 from C$67.

Bank of Montreal shares were down C$1.30 at C$56.70 on Monday.

M&I was down 2.8 percent at $6.66 in New York.

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