GE Fleet units go to Element Financial

The Canadian-headquartered leasing company bought GE Capital’s Canadian fleet business in 2013 and expands its footprint to Australia and New Zealand with the new deal. A subsidiary of BNP Paribas is set to buy the European fleet assets.

General Electric announced that it will sell its US, Mexico, Australia and New Zealand fleet businesses to Element Financial Corporation for $6.9 billion. The industrial company, which is shedding most of its GE Capital business lines, has also signed a memorandum of understanding to sell its European fleet business to Arval, a wholly-owned subsidiary of French bank BNP Paribas. 

The buyers have a global partnership agreement, Element-Arval Global Alliance which Element said would be strengthened by the purchases by expanding the area of operation to more than 40 countries.

GE has not yet sold its Japanese fleet business which is included in the 1.5 million vehicles leased, serviced or managed by the fleet business. 

The $6.9 billion sale price reflects a premium over the $5.7 billion of net earning assets included in the sale, Element said in its own announcement of the deal. The firm is buying the business in each jurisdiction outright and the transaction will give it established and, in some cases, market-leading businesses in three new jurisdictions; Australia, Mexico and New Zealand.

Element is paying for the assets using the CAD2.7 billion ($2.17 billion; €1.93 billion) it raised from a rights issue comprised of subscription receipts, subordinated convertible debentures and preferred shares executed on 29 May. Another CAD5.9 billion in senior debt underwritten by a syndicate of Canadian and international banks increases the firm’s existing credit line to $8.5 billion. That credit line will also be extended to a three-year term when the deal is financed. The acquisition increases Elements leverage ratio to 4.3x under its bank loan covenant calculations and to 5.3x EBITDA, Element said. 

“Adding these very high quality businesses to our existing fleet operations firmly establishes Element as a leader in the North American fleet management industry. But more importantly, by combining these businesses we’re being given an unprecedented opportunity to bring together the systems, technologies, products and people that have helped to define excellence in the fleet management industry in North America for more than five decades,” said Steven Hudson, Element’s chief executive officer (CEO).

The deal will increase Element’s total assets to CAD21 billion while simultaneously making it the largest fleet finance company in North America. Element said that it anticipates that the deal will haul a 20 percent increase in annual earnings per share once forecast synergies of between $90 million to $95 million are achieved. 

GE said that the US and Mexico sales should close in the third quarter, while the Australia and New Zealand sales to Element are set to complete in the last quarter of 2015. The Arval agreement, if approved by regulators, aims to close in the last quarter. All sales are subject to approval by local regulators. 

GE Capital announced sales now total around $63 billion, said the firm in the statement. Last week GE announced that it would sell its US sponsor finance unit including GE Antares to the Canada Pension Plan Investment Board for $12 billion. 

“We continue to demonstrate speed and execution on our strategy to sell most of the assets of GE Capital,” said Keith Sherin, GE Capital chairman and CEO. “We are on track to execute sales of US$100 billion by the end of 2015 and expect to be substantially done by the end of 2016,” he added.