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RBC to acquire City National Corporation


Royal Bank of Canada (RBC) is to acquire City National Corporation, a US private and commercial bank serving high net worth and commercial clients. 

RBC will pay, on average, approximately USD47.25 in cash and 0.7489 of an RBC common share for each share of City National common stock. City National stockholders will be entitled to elect to receive the merger consideration in RBC common shares or cash, subject to certain adjustments and limitations. Based on the closing price on the New York Stock Exchange of RBC's common shares on 21 January, 2015 of USD62.16, the total transaction value is approximately USD5.4 billion or USD93.80 of value per share of City National common stock as of announcement. The aggregate consideration will be paid with approximately USD2.7 billion in cash and approximately 44 million RBC common shares. This represents approximately a 50 per cent cash and 50 per cent share mix as of announcement. The total number of RBC common shares to be issued and the amount of cash to be paid in the transaction are both fixed.

Headquartered in Los Angeles, City National serves high net worth and commercial clients across a number of the largest and most attractive US metropolitan areas, including New York, Los Angeles, the San Francisco Bay Area and Orange County. Founded in 1954, City National's commercial banking specialties include a market-leading position in the entertainment industry and an emerging presence in the rapidly growing technology and health care segments. City National has also been ranked by Barron's as one of America's top 40 wealth managers for the last 14 years.

RBC has a strong presence in the US, with a top-10 investment bank, the 8th largest wealth management firm, and a growing asset management business. RBC has 8,000 employees across the US, including more than 3,000 in New York.

"In line with RBC's strategic goals, we believe this combination creates a powerful expansion platform for focused long-term growth in the country which we view as our second home market. 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 US businesses and product offering," says Dave McKay, President and CEO, RBC. "Like us, City National has a strong commitment to client service and a prudent risk culture. RBC supports City National's community reinvestment program, and both RBC and City National are committed to making a meaningful, positive difference in the communities they serve. City National also has a strong leadership team and its employees are focused on building deep, long-lasting relationships with their clients.

"City National's private banking and wealth management capabilities will enable us to offer a broader product suite to the 340,000 US households served by our US Wealth Management unit. It also has industry specialties which complement our strong US Capital Markets franchise. Its leadership has a proven track record of strong performance and we are confident this transaction will create significant long-term value for RBC's shareholders."

Following the closing of this transaction, RBC will combine its US Wealth Management unit with City National, under the leadership of City National Chairman and CEO Russell Goldsmith, with the combined unit being reported as part of the global RBC Wealth Management segment. Goldsmith has served as City National's CEO since 1995, during which time the company has grown significantly, both organically and through acquisitions.

"We're very enthused about merging with RBC," Goldsmith says. "This combination is a compelling opportunity. It will deliver significant value to our shareholders along with the opportunity to participate in the future growth of RBC. It will promote both continuity and growth, enabling our outstanding team of colleagues to maintain and strengthen City National's value proposition. It will improve what we can do for our clients and the communities we serve. My colleagues and I look forward to joining forces with this company that has tremendous financial strength and considerable resources and capabilities not only in the United States but around the world."

Each City National common stockholder will have the opportunity to elect the type of consideration to be received for City National common stock, subject to certain proration, equalisation and adjustment procedures set forth in the merger agreement. As a result of these procedures, City National stockholder elections of either cash or shares in the transaction may be adjusted at closing. The total value of the consideration that City National common stockholders will actually receive upon the closing of the transaction will be based in part on the value of RBC common shares at closing, and the ultimate exchange ratio for the share portion of the consideration will likely fluctuate prior to closing of the transaction based on changes in RBC's common share price and the equalisation process. As part of the transaction, the Goldsmith family stockholders will receive RBC common shares for the entirety of their stockholdings (approximately 13 per cent) and have agreed to vote their City National stockholdings in favour of the transaction and to hold at least 50 per cent of the RBC common shares received by them in the transaction until the third anniversary of closing.

The transaction is expected to be accretive to earnings per share (before amortisation of intangibles) in the latter part of year three and accretive to earnings in year two. Given RBC's strong capital position and anticipated internal capital generation it expects to maintain its ongoing capital management program, and to maintain a Common Equity Tier (CET) 1 ratio at closing broadly in line with its current level. RBC's CET 1 ratio was 9.9 per cent as at 31 October, 2014.

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