G.E. Finance Unit Will Acquire Heller Financial for $5.3 Billion

15 january 2013

General Electric’s financial services subsidiary, GE Capital, said yesterday that it had agreed to buy Heller Financial for $5.3 billion in cash, or $53.75 a share.

Based in Chicago, Heller Financial provides commercial finance, equipment leasing and real estate finance to small to midsize companies in the United States and Europe.

Heller’s stock price soared on the news. On the New York Stock Exchange, the shares rose nearly 50 percent, closing at $52.99, up $17.09. G.E.’s shares fell $1.05, to $43.60.

Founded in 1919 to finance auto purchases, Heller did not offer its shares to the public until 1998.

”We have known Heller Financial for a long time,” Dennis Nayden, GE Capital’s chairman and chief executive, said in a conference call to announce the deal. ”It is well run, with great people and many former GE Capital people. Fundamentally, they have built a franchise around the small to middle-market customer, companies with revenues from $5 million to $250 million. That is the fastest growth market in the world.”

The purchase will increase GE Capital’s assets by $20 billion, to $390 billion. Mr. Nayden said he expected Heller to contribute at least $250 million to GE Capital’s profit in the first year and $1 billion in earnings over the next three years.

”Heller is a logical extension of core businesses at GE Capital like equipment financing and vendor financing,” said Nicholas P. Heymann, an analyst at Prudential Securities.

”It is a business that has a tremendous health care finance business in the United States, and General Electric has the leverage to expand this across Europe with its GE Medical subsidiary.”

Fuji Bank Ltd., which owns 52 percent of Heller Financial’s equity and controls 77 percent of its voting stock, has agreed to tender all of its shares, GE Capital said. The deal is subject to regulatory approval in the United States and Europe. Mr. Nayden said he expected the transaction to close by the end of the year.

Objections from the European Commission scuttled General Electric’s planned $46 billion takeover of Honeywell International. But analysts said they did not anticipate trouble on this deal with regulators, because G.E. has a fairly small share of the European financial services market.

GE Capital, which has grown through acquisitions, made unsuccessful overtures earlier this year for two other finance companies, Finova Group, which was sold to a group led by Berkshire Hathaway, and CIT, which Tyco International bought in March.

”GE Capital had the money in the bank to have bought either Finova or CIT, but Honeywell sort of suspended animation at the company for a while,” said Jeanne Terrile, an analyst at Merrill Lynch.

”It’s a good thing for GE Capital to be back in the acquisition game. General Electric depends on GE Capital to grow, and acquisitions are part of that growth.”

At a premium of 50 percent over Friday’s closing stock price, GE Capital’s offer seems rich. But Ms. Terrile and other analysts said the offer was fair.

”They paid a price that someone is not going to try to counter,” said John Inch, an analyst at Bear, Stearns. ”General Electric is very much a value buyer. They don’t go out and pay big multiples for companies. And it is probably a fair statement to say that Heller, on balance, has a slightly higher-quality portfolio than either Finova or CIT.”