) --

BMO Financial Group


(BMO) - Get Report

deal to acquire

Marshall & Ilsley

( MI) for $4.1 billion in stock surprised many analysts who believe the deal may be overpriced.

The deal is priced at a 34% premium to M&I's $5.79 share price as of yesterday's closing. That is dramatically different from other financial services deals this year that have been completed at a discount, such as the

Wilmington Trust

( WL) and

M&T Bank

(MTB) - Get Report


"Deal price expensive in our view representing, 0.98x TBV

tangible book value, and 14.8x estimated "norm" EPS

earnings per share of $0.52/shr. That said, the deal is still a take-under in terms of sale below TBV," wrote Andrew Marquardt of Evercore in a note.

Along with the heavy loan book, BMO will repay M&I's $1.7 billion in government bailout funds still owed through the U.S. Treasury Department's Trouble Asset Relief Program (TARP) after the transaction closes.

"We believe this is the best case scenario for MI shareholders given MI's structurally low earnings power, degree of dilution already occurred through this cycle, still outstanding TARP raise/repay to deal with, high remaining loss content, and we suspect little interest from other parties (particularly from domestic banks)," wrote Andrew Marquardt of Evercore in a research note.

"While we believed the company was positioned for profitability by the middle part of next year, many of their peers have already reported positive earnings," wrote Oppenheimer analyst Terry McEvoy. He added that the deal could also benefit

Associated Banc-Corp


, which is the third largest bank in Wisconsin, as "customer disruption" from the acquisition may cause bank consumers to flee.

The transaction, which has been approved by the BMO and M&I boards, is expected to close prior to July 31, 2011. The combined company will have 659 branches, $92 billion in deposits and $162 billion in assets. Integration costs are estimated at $536 million.

--Written by Maria Woehr in New York.

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