Springleaf Holdings Inc. (LEAF, Financial) said that it will purchase OneMain Financial, Citigroup's (C, Financial) financial lender for $4.25 billion. This acquisition will create a U.S. giant in the financial lending sector. The transaction will be paid by Springleaf completely in cash. The joint company will operate from 2,000 branches and will have a customer base of around 2.5 million. Citigroup was its own adviser for the acquisition. Springleaf was advised by Goldman Sachs Group, Inc. (GS, Financial),Bank of America Corporation (BAC, Financial), Credit Suisse Group (CS, Financial) and Barclays PLC (BCS, Financial).
Looking back
Founded in 1920, the company was previously known by the name American General Finance. The Great Recession hurt the company's earnings with a loss of $1.3 billion in 2008 alone. Soon after, Fortress Investment Group took hold of 80% of American General Finance and the new company was known as Springleaf Financial Services. Based in Indiana, the company provides financial products and services. Some of them include credit services, lending, retail sales financing services, etc.
Business stats
The current market capitalization of Springleaf Holdings is $4.421 billion. The fourth quarter 2014 financial results will be declared before the market opens on March 12. Six analysts have estimated the earnings per share to be 54 cents, according to Zacks Investment Research. The last quarter 2013 EPS was 42 cents. For the fiscal quarter end September 2014, the expected EPS was 51 cents. However, Springleaf went on to earn $0.55 per share.
OneMain Financial was formed in 1912 by Alexander Duncan as Commercial Credit. Over a period of time, Commercial Credit acquired major credit insurer and a casualty insurance company. After merging with Citi, the combined company was named as CitiFinancial. In 2011, a new name was given to the company - OneMain Financial. The company is dedicated in providing financial services to its loyal customers for a long period of time. The financial company made $1.67 billion revenue for the first nine months of 2014. Springleaf, however, earned a whooping $552 million for the same period.
The Deal
Springleaf Holdings will acquire Citigroup's OneMain Financial for $4.25 billion in cash. The sale of OneMain is Citigroup's plan to get rid of all unwanted assets. The U.S. Number 3 bank wishes to turn its focus on wealthier clients. After the announcement was made public, shares rose 1% at $54 in premarket trading on Tuesday. Citigroup will use the $4.25 cash from the acquisition for the retirement of a part of its current funding. This funding supports Citi Holdings, it is said. Now that the sale is through, Citigroup is hoping to earn $1 billion in pre-tax earnings. Springfield has announced its intentions of consolidating 200 branches all over the US from mid 2016. Not only Citigroup, but Springleaf's after-tax earnings will also witness a boom this year, if the one-time charges of the acquisition are not included. Many private equity firms tried to obtain OneMain but Springfield managed to outbid them all. Citigroup's CEO Michael Corbat said that the OneMain Financial did not fit their strategy. The company will benefit consumers who not only need but deserve credit. He said that this sell-off will help in Citigroup's plan of simplification. Citigroup has previously quoted a sell-off price of at least $4 billion for OneMain Financial.
Management Words
President and CEO of Springleaf, Jay Levine, said that this acquisition is all set to bring the world's best financial businesses together. The combined strong company has a lot of scope for future growth. The company will now be able to reach out to a significant portion of American consumers with their extended networks, he said. The company looks forward to work with OneMain's team members and mutual success will help in enabling constant growth. Jay Levine will act as the CEO for the combined company. OneMain's CEO Mary McDowell will continue in her position. The deal will mostly close in the third quarter of this year.
