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GE Capital nabs Heller
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July 30, 2001: 1:43 p.m. ET
GE's financial services arm agrees to pay $53.75 a share, a 50% premium
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NEW YORK (CNNfn) - GE Capital, the financial services unit of General Electric Co., has agreed to buy Heller Financial Inc. for $5.3 billion in cash after being spurned in two attempted takeovers earlier this year.
GE is offering $53.75 a share in cash for Heller, a 50 percent premium to Heller's closing stock price Friday, steep enough to reduce the chance of a competing offer.
Heller (HF: up $17.00 to $52.90, Research, Estimates) stock soared more than 47 percent in Monday trading after the news, while GE (GE: down $1.11 to $43.54, Research, Estimates) shares fell.
Heller's main commercial finance, equipment leasing and real estate finance operations will boost GE Capital's core businesses in those areas, the companies said.
"It is a sizable purchase, although not huge, given the size of GE," said Steve O'Neill, an analyst at Hilliard Lyons. "It will expand the areas GE is already operating in, in other ways."
GE Capital said it expects the acquisition to boost earnings by $250 million in the first year after closing the deal and by more than $1 billion in the next three years. GE Capital said the acquisition, which it hopes will close by the end of the year, will cut costs by 30-to-35 percent within the combined group.
There could also be job cuts associated with the deal, but GE Capital said it was too early to tell how many there would be. The picture will become clearer once the deal is closed and the merger begins.
"There probably will be redundancies, but we want to work with Heller to retain key people," said GE Capital spokesperson Valeria Di Maria. "There are a lot of great people across their organization."
Finally, a match for GE
The commercial finance sector recently has been hit by an uptick in bad loans and a drying up of demand. However, Heller, which is among the few remaining independent commercial finance companies, has been able to maintain stable earnings.
The acquisition of Heller will bring GE Capital a team of bankers known for its underwriting discipline. Analysts say this discipline has helped Heller to manage its credit quality despite a difficult economic environment.
"The price that has been offered is a reflection of the high quality of [Heller's] portfolio and the strong performance of the management team," said Matthew Burnell, director of fixed income credit research at Merrill Lynch. "While it is certainly higher than recent deals, Heller has also distinguished itself over its competitors in overall performance."
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Earlier this year GE Capital failed to entice the executives of CIT Group Inc. and the creditors of Finova Group Inc. into selling to GE, according to a report by the Wall Street Journal, which first reported the news of the Heller deal in its Monday editions. The newspaper noted that both CIT and Finova ended up being bought by competitors.
And for GE itself, the deal will be gratifying, because it comes after the company's $43 billion proposed takeover of Honeywell International Inc. (HON: down $0.27 to $37.10, Research, Estimates) was blocked by European antitrust regulators.
The Heller deal is also subject to approval by regulators. Since Heller's overseas operation isn't that large, the deal is expected to win European approval, the Journal said in its report.
The boards of both companies have approved the deal, and Japan's Fuji Bank Ltd., which owns 52 percent of Heller's equity and controls the commercial finance company, also has endorsed the deal. 
-- from staff and wire reports
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