Assessing Commerce: Tax Hit Alters View of Deal: Buzz Persists: Did Cultural Issues Scare off Other Suitors?
Davenport, Todd, American Banker
If everything goes according to plan, Commerce Bancorp Inc. will cease its remarkable run next March or April in a transaction that is unusual, controversial, and possibly trend setting - in other words, in a fashion almost entirely consistent with the corporate identity it has forged since it was founded in 1973.
There is, however, one element missing that Commerce has come to expect: A show of support from its substantial base of shareholders whose enthusiasm for the Cherry Hill, N.J., company has occasionally bordered on fanaticism. At first blush, Toronto-Dominion Bank's $8.5 billion deal to buyCommerce failed to impress investors. As they dig deeper, they are finding even less to like.
The deal price of $42 a share represented a thin premium to its market value, leading investors to wonder what pressing priority compelled Commerce's board and managers to sell what has been heralded as the most formidable model in retail banking at a bargain-basement price. And the agreement comes with what some shareholders see as an unexpected kick in the pants: They will be taxed on the entire price of the deal, even though 75% of the consideration will come in the form of TD stock.
The tax treatment is rare in an industry with a long history of consolidation through tax-free share exchanges.
"There may be a lot of shock when shareholders have to pay tax even on the stock part of the consideration," said Robert Willens, a managing director at Lehman Brothers Inc. who specializes in corporate taxation. "It has been done a few times before, but I don't know that it has ever been done in the financial space. It's almost unheard-of."
He concludes that "the board was in …
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Publication information: Article title: Assessing Commerce: Tax Hit Alters View of Deal: Buzz Persists: Did Cultural Issues Scare off Other Suitors?. Contributors: Davenport, Todd - Author. Magazine title: American Banker. Volume: 172. Issue: 198 Publication date: October 15, 2007. Page number: 1. © 2009 SourceMedia, Inc. COPYRIGHT 2007 Gale Group.
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