Update: GE Capital Divestiture Continues At Good Pace

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On April 10th, 2015, General Electric (NYSE:GE) announced it’s intention to exit out of most of GE Capital, to restructure its portfolio into more of a pure industrial company while moving away from its financial business. GE will be executing this plan by selling off majority assets held under GE Capital over the next twenty four months. The section of GE Capital that will remain at the end of this restructuring are those that directly relate to GE’s Industrial business. GE expects this decision to help the company achieve its long-term goals of growth. Read our detailed analysis of GE Capital’s exit plan and the advantages and disadvantages it brings to parent company GE here.

We currently have a price estimate of $27.81 for GE’s shares, approximately in line with its current market price.

See our complete analysis for General Electric

Since April, GE has made plenty of progress in exiting its financial business. At the time of announcing GE Capital’s exit, GE had already reached an agreement to sell bulk of Capital’s real-estate assets to funds managed by Blackstone. At closing, Wells Fargo acquired a portion of the performing loans. This entire arrangement is valued at approximately $26.5 billion. ((GE To Create Simpler, More Valuable Industrial Company By Selling Most GE Capital Assets, April 10th, 2015, General Electric)) Blackstone is now picking up additional real estate debt assets from Mudabala GE Capital, a joint venture between GE and Abu Dhabi based Mudabala Development Co. as the company globally exits its financial services operations.

GE has also secured the sale of its private-equity lending business including Antares Capital, to Canada Pension Plan Investment Board (CPPIB) for $12 billion. This deal was announced earlier this month and is the second biggest deal secured by GE as it continues to work its way through overall restructuring. The deal is expected to close by the end of the third quarter and is one of the largest financial takeovers since the recent financial crisis, following closely behind the acquisition of Wachovia by Wells Fargo in 2008 for $15 billion. [1]

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Another significant deal in the restructuring process could be coming in from Japanese company Sumitomo Mitsui Financial Group Inc. (SMFG) which is interested in GE Capital’s railcar-leasing business. GE Capital Rail Services is roughly valued at $4 billion and has captured the interest of U.S. financial institutions as well, including Wells Fargo which is already a participant in GE’s real-estate asset sale. SMFG is Japan’s second largest lender by market value and has shown significant interest in acquiring businesses in the U.S. in the past three years. In 2012, SMFG acquired an aircraft-leasing unit from RBS for $7.3 billion. In 2013, the company acquired the rail-leasing business under Perella Weinberg Partners LP for $500 million. The industry speculates SMFG will be interested in growing its rail-leasing business in the U.S. as it brings about higher margins which will help support its lower-margin lending business in Japan. [2] It is also speculated that SMFG is interested in participating in sale of GE’s Japanese financial services arm as well.

Overall, the process of GE Capital’s exit is moving on at good pace and some observers believe that a majority of this process could be completed as soon as 2016.

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Notes:
  1. GE to Sell Buyout Unit to Canada Pension Fund for $12 Billion, The Wall Street Journal []
  2. GE Railcar-Leasing Business Lures Suitor, The Wall Street Journal []