Updated from 4:20 p.m. EDT
Canada's biggest financial institution, the
Royal Bank of Canada
, announced Thursday it planned to acquire
for $1.456 billion in a cash transaction expected to close by year's end. Shares of Dain Rauscher soared 16% after news of the planned deal.
Under the deal, Dain Rauscher stockholders would receive $95 per share -- a 19% premium based on Wednesday's closing price of $79.88. In connection with the merger, the Minneapolis-based regional securities firm also granted Royal Bank a customary option to purchase 19.9% of its outstanding common shares under limited circumstances.
After the announcement, Dain Rauscher's stock jumped to a new 52-week high of $93. Dain Rauscher finished Thursday regular trading up $13 at $92.88. Royal Bank of Canada ended down $1.13, or 2%, at $60.13.
In a conference call with analysts, Royal Bank's chairman and chief executive John Cleghorn said the acquisition is part of the Canadian bank's overall global expansion strategy.
"This continues the build out of our U.S. operations and adds some critical businesses we've been looking for some time," said Cleghorn. "It's a manageable acquisition which fits our growth strategy as well as our financial targets."
In June, the Canadian bank announced its intention to acquire the insurance businesses of Greenville, S.C.-based
The Liberty Corp
Cleghorn declined to comment on other potential takeover targets in the U.S. But he assured analysts that the acquisition of Dain Rauscher "is not an endgame."
"We have to build a stronger North American presence and we intend to do that," said Cleghorn.
The Toronto-based Royal Bank of Canada now offers corporate and investment banking services at facilities in New York, Boston, Chicago and Houston. It also operates a discount brokerage in New York, provides Internet banking in Atlanta, and private banking units in New York and Miami.
The acquisition of Minneapolis-based Dain Rauscher vastly expands Royal Bank's full-service retail brokerage and investment banking services in the U.S., doubling the size of Royal Bank's North American brokerage business, according to Cleghorn.
"I'm not surprised that someone would want to buy them. Relative to other regional firms out there that are independent, Dain Rauscher has one of the more attractive mix of businesses," said Lauren Smith, an analyst at
Keefe Bruyette & Woods
Despite the high premium Royal Bank paid (based on Wednesday's closing price), Smith said the offer was fair. "Dain is a quality, top-tier regional franchise. It got a price that was well deserved," she said.
Smith's firm has not underwritten the stock. Smith had downgraded the stock to a "market perform" rating after the stock price surged 30% in just a few weeks in May. She stressed that the decision was "purely a valuation call -- the fundamentals are still very positive."
Dain Rauscher has a strong retail client base of 250,000 households with $69 billion in assets under management. It has also created a niche for itself among small and mid-cap stocks, underwriting nearly 100 public offerings last year, most of them in the technology or energy sectors.
The newly named
RBC Dain Rauscher Wessels
will have a combined sales force of 2,600 investment advisors and a nationwide network of 215 branches.
In a statement, Irving Weiser, Dain Rauscher's chairman, president, and chief executive, called the merger "an excellent fit both strategically and culturally."