PNC Confirms it Will Buy RBC's U.S. Retail Banking Unit

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Last Update: 20-Jun-11 10:47 ET

PNC Bank (PNC $56.73 -1.06) confirmed it will acquire RBC Bank (USA), the U.S. retail banking subsidiary of Royal Bank of Canada (RY $55.75 +0.21), for $3.45 billion, or $112 million discount to tangible book value; PNC expects the transaction to be accretive to earnings by the end of 2013 or sooner depending on the amount, if any, of the $3.45 billion purchase price paid in the form of PNC common stock.

Under terms of the agreement, PNC will have the option to deliver to Royal Bank of Canada at closing up to $1.0 billion of the consideration in common stock, or 3% of PNC's outstanding common shares based on PNC's closing price of $57.79 on June 17, 2011. The transaction has an estimated internal rate of return to PNC in excess of 19%. The purchase price is currently estimated at ~97% of RBC Bank (USA) tangible book value, based on its balance sheet as of April 30, 2011, and reflects a negative 0.6% deposit premium.

The acquisition adds ~$19 billion of deposits and $16 billion of loans based on RBC Bank (USA) balances as of April 30, 2011. PNC plans to incur merger and integration costs of ~$322 million and achieve a reduction of ~$230 million, or 27%, of RBC Bank (USA) noninterest expense through operational and administrative efficiency improvements. PNC expects to fund the cash consideration with cash on hand, debt issuance and a preferred stock offering.

Consideration paid in the form of PNC common stock, if any, will be limited so that Royal Bank of Canada's direct and indirect ownership of PNC common stock will not exceed 4.9% of PNC's outstanding common shares immediately following the close. The transaction, which has been approved by the boards of directors of both cos, is expected to close in March 2012. When combined with PNC's existing network, the co will have 2,870 branches, ranking it 5th among U.S. banks.