PGPHF Partners Group Holding (PK)

On Wednesday, The Wall Street Journal reported that Partners Group Holding AG (PGPHF) and Avista Capital Partners have acquired California-based apparel maker Strategic Partners Inc. from Bank of America Corporation (BAC). This sale is part of BofA’s stratagem to do away with non-core assets so that it can focus on the fundamental activities.

Although the terms of the deal have not been disclosed, it is estimated that Partners group and Avista Capital have shelled-out $200 million to purchase Strategic Partners. The acquiring firms are planning to expand Strategic Partners into overseas areas. Two years ago, BofA acquired the apparel maker for $212 million.

For the past two years, BofA is in the process of selling non-core units, which do not fit into the company’s strategic setting. By doing so, the bank expects to concentrate more on core business, reduce expenditures and raise additional liquidity. The need for extra fund stems from the new Basel III regulations that require banks to maintain more liquidity in order to withstand severe financial crisis.

Moreover, divesting unproductive units could help BofA rationalize its operations and work towards building a sound capital position. As a result, the bank has been selling everything from credit card operations to wealth management units.

Earlier in August this year, BofA announced the divestiture of its international wealth management unit to Swiss private bank JULIUS BAER GRPN. The deal is anticipated to fetch BofA about $1.5 - $2.0 billion. However, the company has retained the Japanese division of its overseas wealth management wing and will continue to manage its international clients through domestic offices.

Earlier this year, BofA also sold its entire Irish credit card operations to Apollo Global Management LLC’s (APO) fund affiliate, Apollo European Principal Finance Fund I (Apollo EPF). It had also sold its Spanish consumer credit card operations and Canadian credit card portfolio to Apollo and The Toronto-Dominion Bank (TD), respectively, in 2011.

BofA’s efforts to shed non-core units and realigning its balance sheet in accordance with the regulatory changes, post-meltdown to remain afloat, have proved to be highly beneficial. The company has completed the divestiture of more than 20 non-core assets to strengthen its capital position in order to meet the new international capital standards (Basel III), focus on corporate borrowers and the U.S. retail clients as well as strengthen its investment banking.

The proceeds obtained from non-core assets and businesses, generated nearly 79 basis points (bps) of Tier 1 common equity and reduced risk-weighted assets (RWAs) by approximately $29 billion in the last year. Moreover, these initiatives helped BofA clear the March 2012 Stress test. We anticipate the company to aspire for dividend hike and share repurchase in the upcoming year, when it will submit a new capital plan for next round of stress test in 2013.

Currently, BofA retains a Zacks #3 Rank, which translates into a short-term Hold rating. Considering the fundamentals, we also maintain a long-term Neutral recommendation on the stock.

 
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