GM Financial Acquires Ally's Remaining Foreign Operations
November 26, 2012
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DETROIT — As the industry prepared to depart for the Thanksgiving
holiday last week, General Motors Financial announced how much cash it was
getting from its parent automaker to acquire the remaining foreign operations
of Ally Financial.
Officials said GM will contribute approximately $2 billion in cash to GM Financial to increase its equity and ensure an appropriate pro forma capital structure so it can complete the acquisition of automotive financing operations in Latin America, Europe and China from Ally Financial.
"GM is entering the most aggressive rollout of new vehicles in its history, and this acquisition will make us an even more formidable competitor by ensuring that competitive financing is available to our customers and dealers around the world," said GM senior vice president and chief financial officer Dan Ammann.
GM established GM Financial in 2010 via its acquisition of AmeriCredit to add captive financing capabilities in the United States and Canada in the subprime segment.
Officials said with the addition of Ally International Operations, GM Financial will be able to support GM customers and dealers in markets comprising about 80 percent of GM's global sales while earning strong risk-adjusted returns.
"The Ally International Operations have very strong underwriting and risk management, close relationships with GM dealers and an excellent customer service reputation," said Dan Berce, president and chief executive officer of GM Financial.
"The addition of these businesses significantly strengthens GM Financial's core role, which is to support the sale of GM vehicles," Berce continued. "The international operations leadership team will also transition to GM Financial, which will provide tremendous continuity for stakeholders and customers."
The transaction includes operations in Brazil, Mexico, Colombia, Chile, Germany, the United Kingdom, France, Italy, Belgium, the Netherlands, Sweden, Switzerland and Austria.
It also includes Ally's 40 percent interest in its Chinese joint venture GMAC-SAIC Automotive Finance Company.
The companies said the purchase price for the acquired assets represents an approximately $550 million premium to their book value, which for the third quarter was approximately $3.7 billion.
Ally said it would receive approximately $4.2 billion in proceeds from this transaction.
As result of the acquisition, GM Financial's assets will double to approximately $33 billion and its liabilities, including consolidated debt, will increase to about $27 billion compared with about $12 billion today.
The transaction is expected to add $300 million to $400 million to GM Financial's annual earnings before taxes (EBT). This will bring GM Financial's pro forma annual EBT run rate to approximately $1 billion.
Officials said the transaction is expected to be completed by the middle of next year and is subject to regulatory approvals.
"In May, we began a process to pursue alternatives for our international operations in an effort to accelerate repayment plans for the U.S. Treasury's remaining investment," said Ally CEO Michael Carpenter. "This transaction represents the third and final agreement in recent weeks toward those goals, and, combined, these sales are expected to generate approximately $9.2 billion in proceeds."
Carpenter continued, "Our goals were to find the best solution for each of the businesses, while also maximizing shareholder value, and we believe those goals have been achieved. Next, we are focused on completing each of these transactions and evaluating options to return capital to the U.S. Treasury.
"Going forward, we remain squarely focused on further strengthening and growing our leading U.S. automotive services and direct banking franchises," Carpenter went on to say. "We have strong momentum in these businesses, and continued successful execution of our strategic plans will enable these operations to further thrive."
In October, Ally announced agreements to sell its Mexican insurance subsidiary, as well as its auto finance and deposit businesses in Canada.
With the agreement to sell the operations in Europe, Latin America and the joint venture stake in China, the company pointed out Ally will have effectively exited the international markets.
In total, officials calculated these transactions are expected to generate proceeds of approximately $9.2 billion, based on third quarter tangible book value of $7.6 billion, which reflects a premium of approximately $1.6 billion or 21 percent.
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