Norwest Corp. said Tuesday it has reached a definitive agreement to acquire ITT Corp.'s Island Finance, a consumer finance company with operations in Puerto Rico, other Caribbean islands, and Central America.
The deal, worth an estimated $625 million, marks the $56.6 billion-asset Minneapolis banking company's first foray outside the United States and Canada.
Analysts praised the transaction, saying it was immediately accretive to earnings and expanded the company's well-known consumer finance business in emerging growth markets.
Most important, they said, San Juan-based Island Finance is very profitable. The company is expected to earn $55 million this year, with receivables reaching $1 billion by yearend, said Thomas Theurkauf, a banking analyst at Keefe, Bruyette & Woods Inc.
Norwest did not reveal terms of the transaction, but the company did say the purchase price includes a premium of $475 million, and is about 11.3 times Island Finance's estimated 1994 earnings.
Even though the purchase price seems high, Mr. Theurkauf said, "you have to keep in mind that this is an extraordinarily profitable operation with a return on assets of 55%. Clearly, you're going to have to pay a premium for this operation."
The bank expects the transaction to close in the second quarter of 1995, subject to regulatory approvals.
Island Finance will be managed by Norwest Financial, the bank's $5.7 billion-asset subsidiary in Des Moines.
"Island Finance's excellent credit quality, market leadership, outstanding profitability, and experienced management make it a superb fit with Norwest Financial, which has achieved 19 consecutive years of record earnings," said Richard Kovacevich, president and chief executive of Norwest Corp.
Founded in 1959 as Island Finance Bergon Corp. and acquired by ITT in 1966, Island Finance makes consumer loans that typically average about $2,200.
The acquisition will give Norwest 54 loan offices in Puer- to Rico -- or 60% of the island's consumer lending market, according to Mr. Theurkauf.
Island Finance also has 15 offices in Panama, five in the U.S. Virgin Islands, five in the Netherlands Antilles, two in Aruba, and one in Costa Rica.
Norwest said it will continue to operate Island Finance under its existing name.
Norwest is well known for its own consumer finance operations, which contribute about 30% annually to the bank's earnings. It currently operates 1,030 consumer finance "stores" in 46 states and Canada.
ITT's sale of Island Finance is part of a larger effort by the conglomerate to raise a reported $1.7 billion for expansion in the entertainment industry. ITT announced Friday it is selling its commercial finance unit to the North American subsidiary of Deutsche Bank AG.
Reuters news service reported that Deutsche Bank will pay about $900 million for the $3.75 billion in outstanding receivables of ITT Commercial Finance. As a result of the acquisition, Deutsche Bank's North American asset-based lending operations will possess a portfolio of more than $5 billion in assets.
"It boosts Deutsche Bank's presence overnight," said banking analyst Norman Jaffe of Fox-Pitt Kelton.
He noted that the deal will "add competition in the market place" and will likely put downward pressure on the pricing of asset-based Toans.