General Electric's plan to sell most of its finance assets may create a bidding frenzy between the biggest U.S. banks and private-equity powerhouses.
The corporate giant is divesting the bulk of GE Capital, representing a $200 billion chunk of lending, leasing and related financial operations that were once untouchable at the heart of GE. That's on top of plans to dispose of assets including North American and Australian consumer lending businesses that GE values at another $75 billion.
"No one in the industrial world has anything like what GE has," said Scott Lawson, vice president at Westwood Holdings Group Inc., which oversees more than $20 billion including GE stock. "There's an awful lot of capital out there and an awful lot of it is in private equity nowadays. That's going to be a large portion of it. Even the big banks are looking at this."
GE is retreating from finance as Chief Executive Officer Jeffrey Immelt slims an empire built by predecessor Jack Welch. Immelt is focusing on industrial units at the world's largest maker of jet engines and locomotives after GE Capital put the parent company at risk during the global financial crisis.
GE Capital's assets are likely to trigger an onslaught of interest from a wide range of investment firms and institutions, said Walter Todd, who helps manage about $1 billion at GE shareholder Greenwood Capital.
JPMorgan Chase & Co., the biggest U.S. bank, said Tuesday it's going to take a look. Wells Fargo & Co. and Blackstone Group LP, the world's biggest alternative asset manager, already agreed to purchase most of GE's real estate, in a deal valued at $23 billion. Wells Fargo said Tuesday it wants to continue working closely with GE Capital.
Businesses up for sale include GE's international consumer lending platforms and its commercial financing business. Once the restructuring is complete, GE Capital will make up less than 10 percent of operating earnings, down from 42 percent in 2014.
Including the real estate that's being sold to Blackstone and Wells Fargo, the financial operations that GE will sell have a tangible book value of about $33 billion, according to Steven Winoker, a New York-based analyst at Sanford C. Bernstein & Co.
Not all of the assets that GE is selling are gems but they are generally well-regarded and should fetch more than book value, according to Scott Davis, a New York-based analyst at Barclays Plc. At 1.2 times his estimated book value, the divestitures which GE expects to wrap up by 2018 would bring in about $46 billion of net proceeds, he said.
"It's very possible that the lion's share of GE Capital is sold in the next 12 months," Davis said. "Every bank on the planet is going to look at these assets. If they're interested in them, they're interested today, not 2017."
Toronto-Dominion Bank should consider buying parts of GE's U.S. commercial lending and leasing operations and its private- equity sponsor unit, which provides debt financing to middle- market, buyout-firm backed companies, said Peter Routledge of National Bank Financial.
CIT Group Inc., Ally Financial Inc. and Mitsubishi UFJ Financial Group Inc.'s U.S. unit are also interested in GE assets, the Wall Street Journal reported Friday, citing people familiar with the matter that it didn't name.
Don't count out sovereign wealth funds as possible suitors for the assets either, said RBC Capital Markets' Deane Dray.
While a big portion of the cash GE receives from unwinding GE Capital will fund share repurchases, some of it will probably go to acquisitions as well. In energy, the assets that Baker Hughes Inc. and Halliburton Co. will divest as part of their merger could be an attractive opportunity, Lawson of Westwood said by phone.
GE may also look for deals to build out its aviation business, he said. A target like $13 billion aircraft-parts maker Rockwell Collins Inc. is probably bigger and pricier than what GE is looking to do right now and may not be a willing seller, but there's strategic logic to a deal, Lawson said. With GE shifting its focus to the industrial operations, a transaction like that could eventually become more realistic.
"It's funny because you say, 'Once we get six, nine or 12 months beyond this and the muddy water starts to turn clear,' well I can't remember a time when the water wasn't muddy with General Electric," said Chip Pettengill, principal and fund manager at Bahl & Gaynor Investment Counsel Inc. Bahl & Gaynor has about $13 billion under management and advisement, including shares of GE.
"They're constantly doing things, selling this, buying that," Pettengill said by phone. "I don't think that's going to change. But they've got a good plan here to downsize finance. That's going to take a lot of energy and effort and attention."