By Robin Sidel And Kate Linebaugh
Capital One Financial Corp. said it will buy a health-care
financing business owned by General Electric Co. for $9 billion,
marking a new direction by the firm better known for its credit
cards than for lending money to hospitals.
The move will greatly expand Capital One's position in the
booming health-care industry, where it is now just a small player.
As part of the deal, Capital One will get $8.5 billion worth of
GE's existing health-care loans.
The deal is also the latest piece of GE's dismantling of its
once-massive financial-services business.
With the sale, GE will have sold roughly $78 billion of
financial assets toward its goal of shrinking its banking business
by $100 billion this year. Investors have urged the company to
return to its industrial roots amid a wave of federal regulations
and changing market conditions that have weighed on returns.
The sale price for the health-care financing business appears to
have fallen short of initial estimates that valued it between $10
billion and $11 billion when GE began reaching out to potential
buyers of the business in June, according to people familiar with
the matter. The difference between the final sale price and the
initial estimates is because roughly $2 billion of assets were
excluded from the Capital One transaction, according to a GE
spokesperson.
The GE unit lends money to financial companies, investors and
developers across assorted parts of the health-care industry, where
merger activity and stock prices have both been trending higher of
late.
The unit includes senior housing, hospitals, medical offices,
and medical devices. It provided more than $10.5 billion in
financing for acquisitions, refinancings, working capital and other
purposes in 2014, according to its website.
"This is a strategic investment in a specialty industry segment
that we have been building out for the past several years," said
Michael Slocum, president of Capital One's commercial bank, in a
statement.
The deal would represent the fourth-largest acquisition by a
U.S. bank since 2008, according to data provided by Dealogic.
Capital One also acquired the online banking business of ING Groep
NV for about $9 billion in 2011.
Although best known for its credit cards, McClean, Va.-based
Capital One has transformed itself in recent years into a full
provider of banking and lending services. It has more than $200
billion in deposits and $310 billion in assets, making it one of
the nation's largest banks.
Capital One said the deal doesn't require formal approval from
regulators, but added that it has been in discussions with them on
the transaction.
The premium that is being paid to the value of the loans
suggests Capital One plans to retain GE's employees as it expands
the business. In addition to its small health-care business,
Capital One also has other lending operations that specialize in
areas like energy and equipment finance.
In June, GE struck a deal to sell another lending business for
more than the value of the loans it holds. Canada Pension Plan
Investment Board, the country's largest pension fund, agreed to pay
$12 billion for a GE business that lends to investment firms so
that they can buy midsize companies. GE valued the loans that the
pension fund is acquiring at about $11 billion, meaning that the
buyer paid about $1 billion for the business as a going
concern.
Last month, the Federal Reserve gave GE a reprieve on tough new
rules for big banks as the company pursues its plan to shed
financial assets.
"We are on track to reduce our ending net investment by $100
billion by the end of 2015 and expect to be substantially done with
our exit strategy by the end of 2016," said Keith Sherin, chairman
and chief executive of GE Capital, the company's financial-services
unit.
The ultimate goal is to reduce GE Capital's ending net
investment, or GE's measure of assets, by $200 billion by the end
of next year. That doesn't include the divestiture of Synchrony
Financial, a retail credit-card business GE spun off last year. GE
still owns 85% of Synchrony and is expected to sell off that stake
in the future.
Among the company's other recent deals, GE has agreed to sell
$26.5 billion worth of office buildings and commercial real estate
debt to Blackstone Group LP, Wells Fargo & Co. and other
buyers.
Capital One said it expects to complete the acquisition by the
fourth quarter. Darren Alcus, president of the GE business, will
become president of the combined health-care operations of both
firms.
GE said it will hold onto financing businesses that relate to
its industrial operations, including a unit that provides
health-care equipment financing to customers of the business that
is being sold.
Separately, GE said it was selling roughly $600 million of the
unit's real estate equity investments to an unnamed buyer.
Ryan Dezember contributed to this article.
Write to Robin Sidel at robin.sidel@wsj.com and Kate Linebaugh
at kate.linebaugh@wsj.com
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