RBC share price down, reaches for Hollywood

Royal Bank of Canada agreed to acquire City National Corp and its high-profile client base for around $5.4 billion, marking its largest takeover yet amid slowing growth at its domestic market.

Canadas second largest bank by assets will pay $47.25 in cash and 0.7489 in shares, bringing the total value of deal up to $93.80 per City Nationals share. The price represents a 26% premium to the Los Angeles-based companys closing price on Wednesday.

City National, which was founded in 1954, services high net-worth individuals and businesses across major US metropolitan areas, including New York and Los Angeles, RBC said. The US bank is famous for providing financial services to Broadway and Hollywood celebrities.

The list of famous people include Frank Sinatra, who borrowed $100 000 in order to pay a ransom for his kidnapped son in 1963 and Arnold Schwarzenegger, whose gubernatorial campaign in 2003 was funded by the bank.

The deal also values City National at 2.6 time tangible book value and 21 times projected earnings per share for 2015.

RBC predicted that the acquisition will start contributing to its per-share earnings within three years, however, some analysts projected the period to extend to five years of purchase.

“In line with RBC’s strategic goals, we believe this combination creates a powerful expansion platform for focused long-term growth in the country which we view as our second home market,” said Chief Executive Officer Dave McKay.

He also outlined City Nationals strong performance in private banking and wealth management as well as in its commercial business.

City National was ranked by Barron’s, a US newspaper which covers financial information and statistics, as one of America’s top 40 wealth managers for the last 14 years, RBC said.

The acquisition would boost Toronto-based RBCs presence in the US. Currently the banks has 8 000 employees across the US, including more than 3 000 in New York. RBC is also ranked 10th in investment banking and is the eight largest wealth management company in the US.

“We are confident this transaction will create significant long-term value for RBC’s shareholders,” Mr. McKay said.

Royal Bank of Canada fell 2.48% on Thursday and closed at CAD 74.71, marking a one-year increase of 2.09%. The company is valued at CAD 110.49 billion.

According to the Financial Times, the 17 analysts offering 12-month price targets for RBC have a median target of CAD 88.00, with a high estimate of CAD 95.00 and a low estimate of CAD 78.00. The median estimate represents a 17.79% increase from the last close price.