General Electric Company GE inked a definitive agreement to sell its commercial lending and leasing business in Japan to the leasing arm of Sumitomo Mitsui Financial Group SMFG for about $4.8 billion.
Sumitomo Mitsui Finance and Leasing — one of Japan's largest leasing companies — will acquire GE's commercial lending and leasing business in Japan, including capital finance, fleet service and vendor finance. The total assets sold are worth about $4.2 billion.
The offloaded business represented about $4.6 billion in ENI (Ending Net Investment). Subject to customary closing conditions, the sale is expected to close in April 2016. On completion, the deal will likely contribute about $600 million toward GE’s targeted dividend of $35 billion under the divestment plan.
As part of its massive $200 billion asset offloading program to shrink its financial arm, GE put the Japanese business up for sale earlier this year. Several Japanese financial institutions conveyed interest in the unit, as the business is likely more lucrative than traditional lending because of low interest rates on loans and soft loan demand.
The deal represents the second acquisition of a GE business by Sumitomo Mitsui this year. The Tokyo-based financial group also bought GE’s European private-equity financing business for about $2.2 billion.
GE plans to shed over four-fifths of its finance arm under its landmark staggered sale program, drawing an end to the era when it relied on the freewheeling business’ financial engineering skills to generate half of its profits. However, GE plans to keep its vertical financing businesses that are directly related to its core industrial business, such as its GE Capital Aviation Services, GE Capital Healthcare Equipment Finance, and GE Energy Financial Services.
GE expects to be mostly done with the GE Capital exit plan by the end of next year, and is on course to return over $90 billion to investors from 2015 to 2018. Post completion of the exit strategy, GE expects to derive about 90% of its annual earnings from its high-margin industrial businesses.
GE and Sumitomo Mitsui both presently carry a Zacks Rank #3 (Hold). A couple of better-ranked stocks worth considering now include Federal Signal Corp. FSS and Macquarie Infrastructure Corporation MIC, both sporting a Zacks Rank #2 (Buy).
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