City National Corp., parent company of Los Angeles-based City National Bank, has agreed to be acquired by Royal Bank of Canada for $5.4 billion.
The merger, announced Thursday, has been approved by the boards of both banks and will create “a powerful expansion platform for focused long-term growth in the country which we view as our second home market,” RBC President and CEO Dave McKay said in a statement. “City National serves high net worth and commercial client segments in select high-growth markets and represents a unique opportunity to complement and enhance our existing U.S. businesses and product offering.”
Pending regulatory approvals, the acquisition is expected to close in the fourth quarter of 2015.
McKay noted that City National has a strong presence in the Los Angeles, San Francisco and New York areas.
With $32.6 billion in assets, City National has 75 branches and offices with Southern California locations in Glendale, Burbank, Pasadena, Sherman Oaks, Woodland Hills, Torrance, Long Beach, Ontario and Riverside, among others.
RBC is Canada’s largest bank and one of the biggest banks in the world based on market capitalization. The company employs about 78,000 full- and part-time employees who serve more than 16 million personal, business, public sector and institutional clients through offices in Canada, the U.S. and 38 other countries.
In the United States, RBC already has a top-10 investment bank and the 8th largest wealth management firm. The company has 8,000 employees in the U.S., including more than 3,000 in New York.
RBC will buy City National for $2.7 billion in cash and 44 million RBC common shares.
City National shareholders will get $47.25 in cash and 0.7489 of an RBC common share for each share of City National common stock.
The transaction values each City National share at about $93.80.
City National Chairman and CEO Russell Goldsmith called the acquisition a “compelling opportunity” and said it will deliver significant value to City National shareholders along with the opportunity to participate in the growth of Toronto-based RBC.
“It also will enhance what we can do for our clients and the communities we serve,” Goldsmith said. “My colleagues and I look forward to joining forces with this company that has tremendous financial strength, considerable resources and capabilities, and values that are very similar to those of City National.”
Following completion of the transaction, Goldsmith will remain chairman and CEO of City National, and he also will be responsible for RBC’s U.S. wealth management unit.
City National emerged as an attractive acquisition target because it has grown much of its assets in specialty areas, such as lending to clients in the entertainment and film industries — sectors that tend to hold their profit margins more readily than others, according to one New York-based equity analyst.
“That requires more expertise,” he said. “It’s not like working in commercial real estate, where if you can underwrite an office building in L.A. you can underwrite one in San Diego. City National has been very successful in growing its assets when most other banks have found that to be challenging.”
Bob Philpott is a managing partner with the entertainment business management firm Philpott Bills Stoll & Meeks LLP in Encino. His firm represents a slew of Hollywood veterans including actor Michael J. Fox and producers Jerry Bruckheimer and Dick Wolf. In an interview last year with Barron’s, Philpott said he has parked his clients’ money with City National for more than three decades.
City National, he said, has been quick in dispensing loans for his clients’ specific needs.
“The money is faster than the paperwork,” he said. “It shows a lot of faith in our relationship and our clients.”
Other City National clients have included Coffee Bean & Tea Leaf, broadcast legend Vin Scully and celebrity chef Wolfgang Puck.
