Citigroup Inc.’s C deal to sell its subprime lending unit – OneMain Financial – to Springleaf Holdings, Inc. LEAF draws regulatory concerns. Consequently, the closure of the deal might eventually get delayed.
In its latest quarterly filing, Springleaf stated that the review of the proposed deal from an antitrust perspective by the U.S. Department of Justice (DOJ), Antitrust Division is yet to complete. Notably, the DOJ has earlier sought for voluntary request for information from both Springleaf and OneMain and have issued a Civil Investigative Demand (CID) seeking information regarding the proposed deal.
Both the parties have responded to the DOJ’s request and have agreed not to complete the deal before Sep 10, 2015 in order to provide the DOJ adequate time to complete its antitrust review. Also, Springleaf stated that the state attorneys general may seek to coordinate their antitrust reviews with the DOJ’s review.
Springleaf further mentioned, “The DOJ and certain state Attorneys General have expressed to us potential concerns with respect to the Proposed Acquisition. We expect to constructively engage with the DOJ and the states in an attempt to resolve any potential concerns. These discussions could result in a delay in the consummation of the Proposed Aquisition beyond the third quarter.” Notably, the deal was scheduled to close by the third-quarter 2015.
Citigroup, which has been seeking to offload OneMain since the last several years, finally announced the deal to sell the unit to Springleaf in March 2015 for $4.25 billion. The potential deal will be a landmark one, as with over 2.5 million customers and about 2,000 branches, the combined entity of Springleaf-OneMain will stand as the largest subprime lender in the U.S.
Prior to the penning of the deal, CEO of Citigroup, Michael Corbat had revealed that the company was weighing its options including divestiture of OneMain to a private equity firm through public listing or a combination of both.
OneMain – part of the former CitiFinancial – is the biggest operating unit of Citi Holdings with around 1,200 branches and focuses primarily on subprime loans. As Citigroup was hit hard by the subprime mortgage crisis, the company has been taking several restructuring initiatives to make it as much of a problem-asset free as possible. Also, the intention is to focus more on core operations.
While nothing can be concluded about the exact timing of the closure of the proposed deal, we expect the concerns to gradually be mitigated.
Citigroup currently carries a Zacks Rank # 3 (Hold). Some better-ranked stocks in the major regional banks space include Bank of America Corporation BAC and The Bank of New York Mellon Corporation BK. Both the stocks carry a Zacks Rank #2 (Buy).
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