The rumors about General Electric getting out of the consumer finance business are true, well, at least in Australia and New Zealand. The group is selling its finance unit, furthering its exit from the consumer side of lending.
USA Today had this story by The Associated Press:
General Electric is selling another segment of its financial business, transferring its GE Capital consumer-lending operation in Australia and New Zealand to a group of investors in a deal valued at roughly $6.3 billion.
Buyers include Varde Partners, a global investment firm based in Minneapolis, along with the investment firm KKR & Co. and DeutscheBank.
GE Capital provides personal loans and credit cards to about 3 million consumers in Australia and New Zealand, along with financial services for major retailers, the company said Sunday. The deal does not involve its commercial financing business, which makes loans to mid-sized businesses in those countries.
GE has recently spun off other lending units in North America and Europe.
The Wall Street Journal story by Rebecca Thurlow said the move made the company less risky:
The moves have helped shrink GE Capital and make it less risky. But the unit would still rank as the seventh largest U.S. bank, and investors want GE to go further. The Wall Street Journal reported last week that GE, in an acknowledgment of those concerns, was considering making bigger cuts to its banking business, including to its much touted business of lending to midsize U.S. companies, according to people familiar with the matter.
GE Capital’s consumer-finance business in Australia and New Zealand has more than three million customers. It provides personal loans and credit cards, as well as interest-free financing for products sold by local retail partners including housewares and electrical-goods retailer Harvey Norman.
GE Capital will keep its commercial finance unit, which provides loans and leasing to midsize businesses in Australia and New Zealand.
The investor group that is buying the operations also includes $10 billion alternative-investment firm Värde Partners, which has offices in Minneapolis, London and Singapore.
In landing the deal, the KKR, Deutsche Bank group bested several other suitors, according to a person familiar with the matter, including three separate groups involving TPG, Apollo Global Management LLC and Macquarie Group Ltd.
The Reuters story by Jane Wardell reported that the moves come as GE is looking to shrink its reach in other businesses as well:
GE has also disposed of its appliances unit, real estate holdings and a stake in NBCUniversal. The streamlined GE Capital finance unit is focusing on funding purchases of heavy equipment, lend money to mid-sized companies and to invest in commercial real estate.
“This transaction allows us to focus on our strategy to be the world’s premier infrastructure technology company with a specialty commercial financial services business,” said Geoff Culbert, president and CEO of GE Australia and New Zealand.
“We will continue to work with our customers in key industries including oil and gas, energy, healthcare, aviation and mining.”
Duncan Berry, the CEO of GE Capital Australia and New Zealand, said the company would continue to build its commercial mid-market lending portfolio and leasing businesses in the region.
The Sydney Morning Herald reported that deals in the country were heating up:
The deal is the second multibillion-dollar transaction in Australia in a matter of weeks, coming in the wake of Japan Post agreeing to acquire Toll Holdings, the transport and logistics group, for $6.5 billion. Japan Post is to go public later this year.
GE’s Australian finance arm offers a range of services and products spanning personal loans, credit cards and also interest-free retail finance. It is a partner to several large retailers in providing their consumer finance loans. All of these products and services will remain under the company’s new ownership.
GE Australia said that after the sale, it will continue to provide commercial loans along with lending to the so-called mid-market, and also provide commercial lease financing.
Michael Heath wrote for Bloomberg that GE isn’t fully exiting the countries:
GE said it will keep providing credit to customers in businesses such as oil and gas, energy, heath care and aviation.
In July, Fairfield, Connecticut-based GE sold a stake in its North American consumer-lending business Synchrony Financial in an initial public offering that valued the unit at $19 billion. It also spun off a majority holding in its Swiss consumer finance company Cembra Money Bank AG in October. Spain’s Banco Santander SA agreed in June to buy GE’s consumer finance unit in Sweden, Denmark and Norway for 700 million euros (then-$872 million).
“GE has a strong platform for growth in our industrial businesses in Australia and New Zealand,” said Geoff Culbert, president and CEO of GE Australia & New Zealand. “This transaction allows us to focus on our strategy to be the world’s premier infrastructure technology company with a specialty commercial financial services business.”
The Australian unit has about 100 branches and operates store cards for Perth-based Wesfarmers Ltd.’s Coles supermarkets and Myer Holdings Ltd.
“This partnership will provide a platform for growth in the dynamic consumer finance market,” George Hicks, co-CEO of Minneapolis-based Värde Partners, said in a statement. “It is a natural extension of our deep expertise in specialty consumer finance and a great fit for us.”
It’s interesting that this far removed from the financial crisis that companies are still trying to reduce risk in their businesses and selling units. GE likely got a higher valuation now than it would have previously as lending has returned for consumers. It will certainly be interesting to see what sort of oversight and reporting will be available after the new company becomes co-owned by private equity and other investors.
