BMO Financial Group and its indirect, wholly-owned, Chicago-based subsidiary, BMO Harris Bank, signed a definitive agreement with BNP Paribas to acquire Bank of the West and its subsidiaries, which, as of Sept. 30, had assets of approximately C$135 billion ($105 billion).

Under the terms of the agreement, BMO will acquire Bank of the West for a cash purchase price of $16.3 billion or $13.4 billion net of estimated $2.9 billion of excess capital (at closing) at Bank of the West. BMO will fund the transaction primarily with excess capital.

On closing, the acquisition will bring nearly 1.8 million new customers to BMO and will further extend its banking presence through 514 additional branches and commercial and wealth offices in the United States. After the acquisition closes, BMO will have a position in three of the top five U.S. markets, a footprint in 32 states, expanded national specialty commercial businesses and a digital banking platform gathering deposits in all 50 states. With approximately 70% of Bank of the West’s deposits in California, BMO is making a scaled entry to a market with a population of approximately 40 million people producing $3.1 trillion of GDP, which, if it were considered as a country, would rank as the world’s fifth largest economy.

“With the strength of our performance and our integrated North American foundation, we have never been better positioned to take this next step in our growth strategy and to deliver for the new customers and colleagues we look forward to welcoming to BMO. This acquisition will add meaningful scale, expansion in attractive markets and capabilities that will enable us to drive greater growth, returns and efficiencies,” Darryl White, CEO of BMO Financial Group, said. “We will deliver a highly competitive offering to new growth markets, combining the strength of our digital banking platform and a strong team of bankers to generate leading customer growth.

“Breaking down barriers to inclusion is a driving force for both banks; it’s a commitment central to BMO’s purpose: to boldly grow the good in business and life. Both BMO and Bank of the West have achieved ‘outstanding’ Community Reinvestment Act ratings, supported by robust commitments to investing in our communities. We’ll be well positioned to support the communities we serve and to help our customers make real financial progress.”

“Bank of the West is a well-run and well-respected organization that will bring complementary capabilities, products and segment expertise to BMO, all of which are accretive to our existing franchise,” David Casper, group head of North American commercial banking and U.S. CEO for BMO Financial Group, said. “Combining these strengths with BMO’s proven track record of executing and integrating acquisitions will position us to leverage our capabilities to serve more personal, business, commercial and wealth customers. It’s also a great opportunity to build upon our strong track record of engaging with communities where we operate.”

“On behalf of all of my colleagues at Bank of the West, I am excited for what this new opportunity will bring for our customers, our employees and our longstanding community partners,” Nandita Bakhshi, CEO of Bank of the West, said. “Bank of the West’s presence in many of the largest and fastest growing markets in the U.S. provides an ideal and complementary commercial and retail banking platform to fuel BMO’s growth. Combined with BMO’s suite of products and capabilities, we’ll be able to help even more customers achieve real financial progress. Our team of dedicated commercial and business bankers will be a great fit with BMO, working on creative solutions to match individual needs.”

The transaction is expected to be immediately accretive on closing to BMO’s adjusted earnings per share and more than 10% accretive in 2024, including estimated cost synergies. The estimated internal rate of return is approximately 14%. The purchase price is estimated at 1.5 times Bank of the West’s expected tangible common book value based on its estimated balance sheet at close. BMO expects to incur pre-tax merger and integration costs of approximately C$1.7 billion ($1.32 billion) and achieve pre-tax cost savings of approximately C$860 million ($665.77 million), or 35% of Bank of the West’s non-interest expenses, through operational efficiency improvements, with 100% of the cost savings executed by the end of the first year after closing.

The acquisition adds approximately $56 billion of loans and $89 billion of deposits based on Bank of the West’s Sept. 30 balance sheet. BMO expects to take a gross credit mark of C$992 million ($767.96 million), or 126 basis points of loans, and reflect a C$218 million ($168.76 million) fair value mark (write-down of equity), both of which will be accreted into adjusted earnings.

BMO expects to fund the transaction primarily through excess capital on the combined entities’ balance sheet at closing, including an estimated C$3.8 billion ($2.94 billion) from Bank of the West and C$13.5 billion ($10.45 billion) from BMO, which includes the benefit from the sale of BMO’s EMEA asset management business and internal capital generation to the estimated closing date. In addition, BMO intends to introduce a 2% discount on shares issued under its dividend reinvestment plan and expects to raise approximately C$2.7 billion ($2.09 billion) of common equity prior to the closing date. BMO said it is committed to maintaining its target capital ratios and regular dividends within its target payout range. BMO will not proceed with establishing a normal course issuer bid and does not expect to repurchase shares prior to close.

As part of this transaction, BMO does not plan to close Bank of the West branches and said it “is committed to retaining front line Bank of the West branch employees.”

BMO and BNP Paribas will enter into a long-term distribution agreement for the provision of equipment finance and cash management solutions to BNP Paribas’ customers in North America.

The transaction, which was approved by the boards of directors of BMO and BNP Paribas, is expected to close by the end of 2022, subject to customary closing conditions, including regulatory approvals. Upon closing, BMO intends to merge Bank of the West into BMO Harris Bank.

BMO Capital Markets and Morgan Stanley acted as financial advisors and Wachtell, Lipton, Rosen & Katz and Osler, Hoskin & Harcourt acted as legal counsel to BMO.