By Robb M. Stewart


National Bank of Canada's shares were sharply lower in the wake of the lender's roughly 5 billion Canadian dollars (US$3.63 billion) deal to buy Canadian Western Bank.

In morning trading, its shares were down 5.6% at C$109.92, narrowing the advance in 2024 to 8.8%. In contrast, Canadian Western's shares rallied 69% to C$42.05.

Montreal-based National Bank, the smallest of Canada's so-called Big Six banks, late Tuesday said it had a definitive agreement to buy Canadian Western Bank in a share swap that values the smaller western Canadian-focused bank at C$52.24 a share, a 110% premium to the closing price the day before.

To help finance the buy, National Bank plans a public equity offering to raise roughly C$1 billion and will sell about C$500 million in shares to pension fund Caisse de depot et placement du Quebec.

The acquisition of the Edmonton, Alberta, bank will accelerate National Bank's efforts to grow in Canada and broaden its footprint in the country's west from focus largely on Quebec. National Bank said it expects the deal will bolster adjusted per-share earnings on run-rate cost and funding savings.

The deal comes just months after Royal Bank of Canada closed its acquisition of HSBC's Canadian assets, a transaction that received regulatory approval but was criticized by some lawmakers for further concentrating the country's bank market.

National Bank expects the deal to close by the end of 2025. Raymond James analyst Stephen Boland said that while the tie-up looks to be a logical fit, bringing together two banks underrepresented outside of their respective markets in Canada, the timing during what is likely to be a federal election year could mean some western-based politicians and institutions may not be receptive to Canadian Western Bank being taken over by a Quebec bank.


Write to Robb M. Stewart at robb.stewart@wsj.com


(END) Dow Jones Newswires

06-12-24 1106ET