General Electric Co. plans to seek as much as $3.5 billion in the initial public offering of its North American consumer-lending business, now called Synchrony Financial, people with knowledge of the matter said.
GE, which filed for an IPO of the business today, will seek a valuation of $20 billion and $25 billion in the sale, said the people, asking not to be identified because the information is private.
The spinoff of the consumer-finance arm, whose products include store credit cards for retailers such as Wal-Mart Stores Inc. and J.C. Penney Co., bolsters Chief Executive Officer Jeffrey Immelt's bid to boost the share of earnings from units making industrial goods. Immelt has a goal of cutting dependence on earnings from GE Capital to 30 percent of total profits.
"When you look at this business they're spinning off, there's little justification for why they should be in that business in the first place," said Gary Flam, a fund manager in Los Angeles with Bel Air Investment Advisors LLC, which owns 818,678 GE shares, according to data compiled by Bloomberg.
Seth Martin, a spokesman for Fairfield, Connecticut-based GE, declined to comment on details of the offering. GE fell 0.8 percent to $25.55 as of 12:05 p.m. in New York today.
While the size of the deal may change based on investor demand for the shares, at $3.5 billion the IPO would be the largest by a U.S. company since Facebook Inc. raised $16 billion in May 2012, data compiled by Bloomberg show. Consumer-finance companies raised $10 billion through equity offerings last year, the most since before the financial crisis, data compiled by Bloomberg show.
A range of $20 billion to $25 billion values Synchrony at 10 times to 12.6 times 2013 earnings of $1.98 billion. U.S. consumer-finance companies with more than $1 billion in market capitalization, including Visa Inc. and Western Union Co., trade at a median of 13.6 times earnings, data compiled by Bloomberg show.
GE has said it expects as much as 20 percent of the unit to be sold in the IPO. GE said today it expects to complete the share sale this year and to fully exit Synchrony through a split-off transaction in 2015. It may also decide to leave the business by selling or otherwise distributing or disposing of all or a portion of its remaining interest, it said.
Synchrony had total loan receivables of $57.3 billion at the end of December, according to today's filing. The company will obtain two loans to boost capital for an undisclosed amount, it said.
Immelt has been shrinking GE Capital since credit markets froze in the financial crisis, imperiling the parent company and forcing it to slash its dividend by more than two-thirds in 2009. He started by shedding real estate and home loans.
At the end of last year, GE Capital's ending net investment, a measure of its balance sheet excluding non- interest-bearing liabilities and cash, slid to $380 billion from $556 billion in 2008. GE estimated in November it will fall as low as $300 billion following the consumer lending spin off.
Proceeds from the public offering will remain with the new company and be used to build out its infrastructure as it prepares for the final break from GE, the company said in November. The transaction will cause GE Capital's profits to drop to $7 billion this year and to $5 billion in 2015, GE has said.
Synchrony will have to pick up about $594 million of costs that GE had provided for it, the filing shows. The company plans to increase advertising and marketing expenses by $100 million to promote new brand.
GE said it plans to make up for the spin off's impact on earnings per share with cost cuts and efficiency gains at the industrial businesses as well as share buybacks.
The sale is being managed by banks including Goldman Sachs Group Inc. and JPMorgan Chase & Co., according to today's filing with the U.S. Securities and Exchange Commission. Synchrony will apply to list its shares on the New York Stock Exchange under the symbol SYF.