GE set to sell Europe private equity unit to SMBC for over $2 billion : Source

30 Jun 2015 | Author: | No comments yet »

Japan’s Sumitomo close to acquire GEs European private-equity finance arm.

Sumitomo Mitsui Financial Group Inc. is near an agreement to buy General Electric Co.’s European buyout-lending unit for more than $2 billion, a person with knowledge of the matter said.

First reported by The Wall Street Journal, the unit being put up for sale is a sponsors unit that specializes in financing buyouts and other transactions for European private-equity firms. However, it is likely that the deal will exclude GE Capital’s stake in its €3bn ($3.4bn) joint venture with Ares that is also involved in financing private-equity deals. The current deal follows GE’s announcement of its decision to sell its vehicle-fleet financing businesses in the US, Mexico, Australia and New Zealand for $6.9bn.

Banks in the world’s third-largest economy are looking abroad for growth as a declining population and shrinking loan margins hamper profit prospects at home. “This is an effective way to expand overseas business,” said Yoshinobu Yamada, an analyst at Deutsche Bank AG in Tokyo. “Sumitomo Mitsui can count on the spreads from lending to private equity. Moves to purchase these types of assets will increase among other megabanks.” Shares of Sumitomo Mitsui, Japan’s second-biggest bank by market value, rose 0.2 percent at 2:25 p.m. in Tokyo, extending this year’s gain to 24 percent. According to the Guardian, GE has been under a lot of pressure from investors to divest its finance unit amid stringent federal regulations and tough market conditions.

In comparing the stock’s current level to its extended history, the stock is trading -5.19% away from its 52-week high of 9.25 and +30.12% away from the stock’s low point over the past 52 weeks, which was 6.74. Chief Executive Officer Jeffrey Immelt is refocusing on industrial operations, making products such as jet engines, gas turbines and medical scanners. The European private-equity unit, which lines up financing for buyout firms, had been one of GE Capital’s top sale priorities, along with the U.S. division and the health-care lending business, GE Capital CEO Keith Sherin said in a June 9 interview. This is an important indicator as a higher ratio typically suggests that investors are expecting higher future earnings growth compared to companies in the same industry with lower price to earnings ratios. The U.S. company agreed to sell the bulk of its vehicle fleet-management business to Canada’s Element Financial Corp. for $6.9 billion, according to a statement Monday.

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