General Motors' (GM: Quote) financial arm General Motors Financial agreed Wednesday to acquire the international operations of its former finance arm, Ally Financial, Inc. (GJM: Quote), for about $4.2 billion. The deal, expected to close in mid-2013, will help Ally to now focus its resources on further strengthening its U.S. auto lending and banking operations to turn its business around. Meanwhile, GM will benefit by making available competitive financing to customers and dealers worldwide.
The deal value represents a $550 million premium over the tangible book value of Ally's divested operations. GM is expected to contribute about $2 billion in cash to help GM Financial fund the purchase.
Ally's international operations will help GM Financial support GM's customers and dealers in markets comprising about 80 percent of GM's global sales, while earning strong risk-adjusted returns.
The deal will also double GM Financial's assets to about $33 billion, while its liabilities, including consolidated debt, will more than double to about $27 billion. It is also expected to boost GM Financial's annual earnings before taxes, or EBT, by $300 million to $400 million, bringing up its proforma annual EBT rate to about $1 billion.
Detroit-based Ally Financial noted that the deal to sell its operations in Europe and Latin America, as well as its 40 percent stake in its Chinese joint venture GMAC-SAIC Automotive Finance Co. is the final transaction towards its strategic plans to repay the U.S. Treasury.
The sale will include Ally's auto finance operations in Germany, the U.K., Austria, France, Italy, Switzerland, Sweden, Belgium, the Netherlands, Luxembourg, Brazil, Mexico, Colombia and Chile, which together represents about $16.1 billion in assets.
"The addition of these businesses significantly strengthens GM Financial's core role, which is to support the sale of GM vehicles. The international operations leadership team will also transition to GM Financial, which will provide tremendous continuity for stakeholders and customers," GM Financial President and CEO Dan Berce said in a statement.
Ally agreed last month to sell its Canadian auto finance and deposit business to Royal Bank of Canada (RY, RY.TO) for about $3.1 billion to $3.8 billion, and its Mexican insurance unit, ABA Seguros, to ACE Ltd. (ACE) for around $865 mllion in cash.
Ally noted that it is now focused on completing each of these three transactions and evaluating options to return capital to the U.S. Treasury. Ally's complete exit from the international markets through the three transactions are expected to generate total proceeds of about $9.2 billion, reflecting a $1.6 billion or 21 percent premium over the tangible book value for the divested operations.
"In May, we began a process to pursue alternatives for our international operations in an effort to accelerate repayment plans for the U.S. Treasury's remaining investment. This transaction represents the third and final agreement in recent weeks toward those goals, and, combined, these sales are expected to generate approximately $9.2 billion in proceeds," Ally CEO Michael Carpenter noted.
Ally has already paid about $5.5 billion to the U.S. Treasury, enabling the taxpayer to recover about one-third of the investment made in the company. Ally is 74 percent owned by the U.S. government after it received a bailout of more than $17 billion during the financial crisis, as part of the government's broader rescue of the auto industry. Ally still owes about $12 billion to the U.S. Treasury.
Meanwhile, Ally's troubled mortgage unit, Residential Capital LLC, filed for Chapter 11 bankruptcy in May, and is looking to sell most of its remaining mortgage operations.
GM closed Wednesday's regular trading session at $24.60, unchanged on a volume of 4.91 million shares, and GJM closed at $24.60, up $0.01 or 0.03% on a volume of 17,676 shares.
by RTT Staff Writer
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