Associates First Capital Corp., said Tuesday it would buy competitor Avco Financial Corp. for $3.9 billion in cash.

The purchase-the biggest ever by Associates, which Ford Motor Co. spun off this year-would give the Dallas lender an additional $8.9 billion of assets, double its branches, and significantly increase its international presence.

The deal also would firmly secure Associates' long-held position as the largest consumer finance company in the United States. Associates will have more than 2,100 branches here, before consolidation, and $72 billion in managed receivables.

Rival Household International Inc.'s June 30 acquisition of Beneficial Financial Corp. came close to ousting Associates from the top spot. The merged entities have 1,480 branches and $63.3 billion in managed receivables.

Avco, a subsidiary of Textron Inc., Dallas, has 1,265 branches worldwide.

It ranks No. 1 among consumer finance companies in Australia and No. 2 in Canada and the United Kingdom.

The company also has branches in France, Spain, Ireland, New Zealand, Sweden, India, and Hong Kong. The company is projecting $192 million in net income in 1998.

Associates would take a $250 million one-time charge related to the purchase and eliminate 20% to 25% of branches domestically.

The price represents 3.3-times Avco's book value, and 20.3 times the company's earnings, a bargain compared with recent finance company purchases. Household paid about five times book value for Beneficial, for example.

"Domestically, there is a big opportunity for us," said Associates chief executive Keith Hughes, in a conference call. Associates plans to convert Avco's domestic unsecured loans into home equity loans and its home equity loans into first mortgages, he explained.

The acquisition would make Canada "even more important" to Associates, Mr. Hughes said. "There's enormous forward momentum in that country."

Associates already has a significant presence in Canada, gleaned through the purchase of a Beneficial Corp. unit there earlier this year, and the purchase of Superior Credit Corp. in 1997.

Additionally, Avco's "gateways in other parts of the world really make sense," Mr. Hughes said.

The purchase is timely for Associates, said E. Reilly Tierney, an analyst at Fox, Pitt, Kelton, New York. "If they want to sustain their historic growth rate, they will need international growth," he said.

J.P. Morgan and Goldman Sachs advised Textron on the deal, while Lehman Brothers served as adviser to Associates. Several large lenders, including Norwest Finance, a unit of Norwest Corp., and CalFed, were said to be active bidders.

Associates winning the bid for Avco may leave Norwest Finance searching for an acquisition to boost income and asset growth, some observers said.

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