General Electric Co. (GE) has announced a decision to dispose of its fleet businesses in a move back to its core industrial activity. This change in strategy is very much the result of investor demands for GE to return to its core business.
Current market conditions as well as Federal regulations have had an impact on the returns from the fleet and finance divisions.
The fleet division has a history going back to the 1957 founding of Container Leasing Inc. that went through various name changes and acquisitions which finally resulted in the formation of Transport International Pool, Inc. (TIP). GE Capital, a division of General Electric, bought the TIP parent company, Gelco for $414 million in 1987. Using the GE financial muscle, TIP was able to expand into Canada, and most of Europe as a fleet hiring and sales company with specialized units providing maintenance, driver training, insurance and a host of other fleet related services. This thrust was very much that of a diversified financial services company further and further removed from the General Electric core industrial activity.
The essence of the current deal is the sale by GE of its U.S., Mexico, Australia and New Zealand fleet business for $6.9 billion. A separate smaller deal will see the fleet business in Europe also sold in the company's latest move away from banking.
The first part of the deal completes the sale of the Canadian fleet interest held by GE Capital to Canada’s Element Financial Corp. while the U.S. and Mexico sale is expected to be completed in the third quarter of 2015 and the Australian and New Zealand component in the fourth quarter.
GE also announced that it has signed a memorandum of understanding with Arval, a wholly owned subsidiary of BNP Paribas SA, which is in the same fleet hiring and sales space as the GE Capital fleet companies. The sale involves the disposal of 160,000 vehicles in Europe valued at 2.4 billion euros. European buyer Arval and Canadian buyer Element work as partners in North America.
GE Capital Chairman and Chief Executive, Keith Sherin said that the company is on track to execute sales of $100 billion by the end of 2015 and expects to be substantially done by the end of 2016.
GE sold its private equity lending unit to Canada’s largest pension fund in a deal valued at $12 billion earlier this month as part of its strategy to sell most of GE Capital’s $500 billion in assets. This is all in line with the move back to its industrial business model. Total sales announced to date are valued at $63 billion.
Element will finance the purchase with the proceeds of a recent C$2.7 billion securities offering and the balance with C$5.9 billion in debt.
Major French bank, BNP Paribas said the acquisition from GE Capital would broaden the reach of the Element-Arval Global Alliance which is set to manage 3 million vehicles in 40 countries. The bank said that the deal, if approved, would be finalized in the fourth quarter.
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