Strategic Options Review Update: Potential Buyers Retreat, Impact on Laurentian Bank's Future - Latest News

2023-07-29 05:06:20

The process of reviewing strategic options at Laurentian Bank has just taken an intriguing turn. Explanations.

Posted 1:06 a.m. Updated 6:00 a.m.

The number of potential suitors is dwindling, as Scotia and TD have decided not to submit a bid for the Montreal financial institution, according to information from the Globe & Mail.

“It possibly reduces the probability of seeing a sale of Laurentian to less than 50%, but if this is not the case, it at least reduces the chances of a higher bid for the bank”, indicates the analyst Joe Ng of Barclays in a research note published Friday.

This expert – like many others – believed that TD, with its financial means, and Scotia, because of its desire to improve its presence in Quebec, were two of the most motivated contenders to want to acquire Laurentienne. .

Portfolio manager Stephen Takacsy of Lester Management said he was surprised to learn that Scotia and TD were pulling out of the process.

I’m a little surprised because it’s a fairly easy acquisition to make to increase its market share in Quebec and expand into commercial financing in the United States. [avec la filiale Northpoint].

Stephen Takacsy, Portfolio Manager at Gestion Lester

These two banks may have other fish to fry, he adds. “I continue to believe that Laurentian will be sold. The question is at what cost. »

Should a buyer eventually come forward for Laurentian, Joe Ng believes the odds of an offer exceeding book value of approximately $59 per share are dwindling.

Laurentian shares jumped 27% to $43 on the Toronto Stock Exchange on July 12 after bank management announced a review of its strategic options.

The bank’s stock fell 6% on Friday to close the week at $41.05 after news emerged that Scotia and TD had no plans to make a bid.

Until Laurentian management announces the outcome of the ongoing strategic review and some clarity is restored, Joe Ng believes Laurentian’s stock is at risk of a slow move in the near term. on the decline.

Meanwhile, investors continue to give Laurentian a valuation well below its book value (about $59 per share). “It suggests that the market is not convinced of the emergence of a purchase offer incorporating an overbidding premium”, maintains Joe Ng.

The current situation leads this specialist to wonder what will happen if the sale of Laurentian does not materialize.

He wonders if the effort to explore different strategic options could mean, to some extent, that Laurentian’s management doubts that its current business plan can produce the results that can bring the bank’s value to a level above its book value.

A crucial summer

However, there is still interest in Laurentian, according to information obtained Friday by The Press.

If a transaction is to be carried out with another Canadian bank, it risks being announced at the end of August, when the banking institutions’ quarterly results are released, because the bank managers will certainly be asked questions about Laurentian by analysts while the bank’s management, for its part, will have to take stock of its strategic review process by presenting its results.

To avoid discomfort in front of analysts, Laurentian CEO Rania Llewellyn will certainly want to have something to announce at the end of August surrounding the future of the bank she leads.

If selling is not the only option, clarifying the situation will be important. For the good of its employees, customers and shareholders, Laurentian certainly wants a resolution as quickly as possible in order to avoid fueling uncertainty and speculation.

Laurentian, Scotia and TD declined to comment on Friday.

In addition to the major Canadian banks, the names of iA Financial Group, Desjardins Group and Power Corporation (Wealthsimple) have all surfaced this summer as potential contenders.

Laurentian Bank, whose market capitalization is close to $1.8 billion today, has nearly 3,000 employees and balance sheet assets of $50 billion.