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MOUNT LAUREL, N.J. - Canada’s TD Bank Financial Group is buying the Mid-Atlantic regional bank Commerce Bancorp Inc. for $8.5 billion in cash and stock.
 
The deal announced Tuesday would double TD Bank’s United States presence, adding Commerce’s roughly 460 branches on the East Coast.

TD Bank, one of Canada’s five largest banks, already owns TD Banknorth, with about 600 branches in the United States. most of them in New England but some as far south as the Philadelphia area.

“Commerce Bank is a perfect fit,” TD Bank President and CEO Ed Clark told analysts on a conference call Tuesday.

He said the acquisition would make the company a major player in United States banking, ranking seventh largest in terms of number of branches.

It would also become the second-largest bank in both Philadelphia and New Jersey, expand its business in New York and get a beachhead in Washington and Florida.

For Commerce investors, the news did not seem universally rosy, though.

“The clients that I’m speaking to think you’re giving away the franchise,” Gary Townsend, a banking analyst with Friedman, Billings, Ramsey Group, told Commerce officials in a conference call.

Commerce Bancorp shares fell 14 cents to $39.47 in morning trading Tuesday after earlier rising to a 52-week high of $41. Shares in TD Bank declined $3.95, or 5.1 percent, to $72.99.

Toronto-Dominion Bank broke into the United States in 2004 when it bought control of New England’s Banknorth.

TD Bank also owns about 1,000 TD Canada Trust banks in Canada, and has a stake in the broker TD Ameritrade, based in Omaha. It also owns TD Waterhouse Canada and TD Waterhouse U.K.

TD Bank had about $404 billion in assets as of July 31. Commerce had about $48 billion in assets as of June 30.

Terms call for a 75 percent stock and 25 percent cash transaction that values Commerce at $42 per share, a 7 premium over the stock’s Monday closing price.

The banks said the deal would close in the spring of 2008 if regulators approve.

Some analysts said a sale became a possibility in June when Commerce’s iconoclastic founder, Vernon W. Hill II, was forced out in a settlement with federal regulators.

During Hill’s 34 years running Commerce, the bank grew almost from one office in the Philadelphia suburbs to a major player in banking on the East Coast. Commerce now has branches between New York City and Washington, and in Florida.

The growth came almost entirely through building new facilities — as opposed to buying existing banks. A major reason for that strategy is that Commerce has a different corporate culture from other banks and a business model that works more like a retailer than conventional banks.

Until now, the company has also resisted combinations with larger banks.

Clark said it made sense for the banks to combine now, even though he expects another six months of economic uncertainty.

He said that a strengthening Canadian dollar against the U.S. dollar coming at the same time that Hill departed made the deal possible.

“Circumstances changed for them in June that led them directly to discussions with us,” Clark said.

Commerce officials indicated that they may have had at least preliminary discussions with other suitors.

TD North says that for now Commerce will continue to operate its branches independently and continue to add branches as previously planned.

But over the next year or so, TD Banknorth President and CEO Bharat Masrani said, TD Banknorth and Commerce will merge their back-office operations.

After that, Masrani said, the Philadelphia-area and New Jersey Banknorth branches would become Commerce stores. Masrani said it’s not clear what brand names the branches would carry beyond that.

Whatever the names, Masrani said the experience for Commerce customers should not change.

As part of the deal, TD Bank said it had agreed to negotiate to sell Commerce’s insurance division back to its founder, George E. Norcross III.

Under terms of the deal, Commerce shareholders will receive 0.4142 shares of TD Bank common stock and $10.50 in cash for each share of Commerce.

Toronto-based TD Bank will take a one-time pretax restructuring charge of $490 million once the deal closes. The acquisition is expected to dilute 2008 earnings by 28 cents per share and 2009 earnings by 22 cents per share.