N.J. bank purchase boosts network

TD Banknorth will nearly double the size of its branch network with the $8.5 billion acquisition of Commerce Bancorp Inc. of New Jersey, disclosed yesterday.

TD Banknorth, based in Portland, Maine, but owned by Toronto-Dominion Bank of Canada, is taking advantage of the most favorable exchange rates in decades to pay cash and stock for Commerce, New Jersey's largest lender. Toronto-Dominion Bank said the deal will make its network the seventh-largest in North America, with 2,102 branches.

The deal is a bold one for TD Banknorth, which has been expanding steadily.

Last week, it opened a branch in Boston's Back Bay, to much fanfare. TD Banknorth has about $40 billion in assets, 8,800 employees, and 586 branches in northeastern states. Commerce has about $48 billion in assets, 15,000 employees, and 460 branches in nine states, including Connecticut, New York, New Jersey, and Pennsylvania.

Executives said the deal will not require either bank to sell branches to gain regulatory approvals since they don't operate in the same territories.

"The typical bank deal is about one company that runs out of gas and sells, and then it's slash and burn. That's not the case here," said Bob Falese, Commerce Bank's president and chief executive, who will continue in that role when the acquisition is completed. TD Banknorth chief executive Bharat Masrani will run the combined company. Commerce will keep its name, at least for the time being.

For Commerce Bank, the deal provides a step forward after its founder and former chief executive Vernon Hill left this year as regulators probed the bank's dealings with other companies controlled by his family.

Hill, a former real estate developer who founded the bank in 1973, increased assets more than 16-fold from 1995 through June. The red-trimmed branches were built to look alike, part of a branding idea that Hill said he got partly from his ownership of more than 40 Burger King restaurants.

One analyst, Gary B. Townsend of Friedman Billings, said Banknorth got good terms and downgraded Commerce shares, partly because of the high tax payments the deal will generate. He also called the agreement "an unfulfilling takeout price" for Commerce shareholders, indicating they could have gotten more money for their stock. Meanwhile Toronto-Dominion will gain entry to valuable markets. "TD very much got what they wanted," he said.

Toronto-Dominion's acquisition would be the third-largest foreign transaction for a Canadian company, according to Bloomberg News, trailing only Manulife Financial Corp.'s $13.9 billion purchase of John Hancock Financial Services in 2004 and Thomson Corp.'s takeover of Reuters Group PLC this year.

The banks said they hope to finish the deal by April, subject to approvals from regulators and Commerce Bank shareholders.

Bank of America Corp. has the largest branch network in North America, with 6,189 outlets. When Toronto-Dominion's deal is completed, it will be larger than Royal Bank of Scotland's US retail banking unit, Citizens Financial Group Inc. of Providence, which operates 1,661 branches.

Ross Kerber can be reached at kerber@globe.com. Material from Bloomberg News was used in this report.