NEW YORK - Marshall & Ilsley corporation has announced that it will be bought out by Bank of Montreal. BMO will increase its assets size in the U.S. to $150 billion which would make it essentially the 11th largest bank in the U.S.
The transaction can allow people to play arbitrage with the two companies stocks. MI which is a very weak company trades at $6.62 and it will be converted into 0.1257 shares of BMO. In essence each MI share should trade at $7.02 which is a 6% discount to the current price. BMO has lost nearly 9% of its value on a merger we deem to be very positive. And if one buys MI they can get it at a 15% discount since the merger was talked about and when the merger is completed they will receive their BMO shares. Of course there is risk that the merger will fall through. However, it is unlikely given the weakness of MI. The regulators will want this deal to close.
We also believe BMO was already the most undervalued Canadian Bank.
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