FP Article...
Is GE Capital’s fleet leasing business Element Financial’s next target?
It’s just a rumour, but like all rumours is underpinned by some credibility. Maybe in the next week or so we will know how much credibility those rumours actually had.
We are referring to the possible use of proceeds for Element Financial Corp., which stunned the markets last week when it announced a $2.2 billion equity financing. Later in response to string demand, the equity offering – of subscription receipts, rate reset pref shares and convertible debentures – was raised to $2.5 billion. Common equity in the form of subscription receipts was the largest component of that equity. The receipts were issued at $17; the underlying common shares now trade at $18.24.
So what is Element, which has largely grown by acquisition, planning to do with this pile of cash?
The company, which one year back bought the U.S. fleet leasing business of PHH Corp, hasn’t given any indication other than to say that it “has not entered into any definitive agreement for an acquisition requiring the use of the net proceeds of the Offerings.” It did add that as part of its business development that it is “regularly engaged in discussions regarding possible acquisition opportunities.” Element also added it “expects to continue to pursue discussions regarding possible acquisitions and to enter into negotiations with respect to such potential acquisitions and to actively pursue other acquisition opportunities that present themselves or become available.”
According to the talk, the so-called GE Capital assets could be one such acquisition that Element is pursuing. In all GE has put up about US$130 billion of assets up for sale, a group that includes loans, leases, equipment finance and inventory finance. GE plans to concentrate on its industrial businesses. Some of the asset groups being sold off would be well suited to Element, a company has more than $12 billion in assets and which defines itself as “one of North America’s leading fleet management and equipment finance companies. Element operates across North America in four verticals of the equipment finance market — Commercial & Vendor Finance, Aviation Finance, Railcar Finance and Fleet Management.”
One market participant said, “that would seem to be the plan. I think the objective is buy GE’s fleet leasing business in the U.S. GE is the largest in the U.S. and that acquisition would make Element the dominant player in the U.S.”
As to why raise the capital before making the acquisition, this participant said that the financing shows to GE that Element has the necessary resources to pull it off. Having the cash means that GE can enter discussions with Element knowing that there shouldn’t be any risk of the deal not closing. “It gives confidence to GE,” said the participant.
Given the size of the GE Capital portfolio that’s being sold off, it can be expected that more than one buyer will be involved. One would presume that the sharp guys who run Element could craft a transaction whereby they could buy just the assets it needs.
One interpretation is that Element didn’t announce the name of the company being acquired because negotiations weren’t sufficiently advanced to announce a deal.
This week we may get the answer.