General Electric said on Tuesday morning it will sell its sponsor finance unit, GE Antares, and a $3 billion portfolio of bank loans to the Canada Pension Plan Investment Board (CPPIB), a Toronto-based pension fund that manages $264 billion in assets on behalf of over 18 million Canadian pensioners.
The divestiture by GE follows CEO Jeff Immelt?s decision in early April to put up most of the industrial conglomerate?s GE Capital ?businesses up for sale, effectively undoing a push by Jack Welch to diversify into financial services during the 1990s. The decision, cheered on by shareholders and analysts, came amid heightened regulatory scrutiny into GE Capital. The division was facing the prospect of being designated a so-called ?systematically important financial institution,? or SiFi, potentially putting it under the Federal Reserve?s purview as part of the 2010 Dodd Frank Act.
General Electric (GE) CEO Jeffrey Immelt takes part in the first ?Economy Summit? organised by the French magazine Challenges
Instead of mounting an effort to meet those heightened burdens, GE now is in the process of selling off financial businesses to buyers who are willing to bear the operational challenges and reporting requirements of new regulations.
In total the businesses GE put up for sale in April represent roughly $200 billion in ending net income (ENI). With Tuesday?s sale GE is divesting roughly $11 billion of ENI and is on track to $100 billion in ENI by the end of 2015. Those divestitures will allow GE to greatly expand its capital returns to shareholders through dividends and share repurchases.
Tuesday?s deal will contribute roughly $2.5 billion of capital to GE?s targeted $35 billion of dividends expected as part of its GE Capital sale. Overall, GE expects to return $90 billion to investors in dividends, buyback and continued sale of shares in Synchrony Financial after its spin in 2014. GE?s board has authorized a $50 billion stock buyback and the company forecasts reducing its share count by up to 8.5 billion shares by 2018. The company also maintains an aggressive stance towards acquisition to bolster its ongoing businesses in healthcare, aviation, oil and gas and industrial operations.
About Tuesday?s deal, GE Capital CEO Keith Sherin said, ?This represents an important milestone as we continue to execute on our strategy to sell most of the assets of GE Capital. The value we will achieve through this transaction is a testament to the depth of talent and expertise of the Sponsor team and our ability to execute high-value transactions quickly.?
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