The US-based conglomerate General Electric (NYSE:GE) said recently that it is planning to garner nearly $3.5 billion from the initial public offering of one of its business units called GE Capital Retail Finance. After the IPO, the unit will be renamed as Synchrony Financial.
GE Capital Retail is a consumer lending business. The loan is given to different small and mid-sized business. In 2013, GE Capital collected $44 billion and General Electric overall collected $146 billion.
It should be mentioned that other than capital finance, GE has a significant presence in other areas like technology infrastructure and energy. The credit card business based in North America is small compared to other units.
In 2013, GE Capital added 40% of the company’s total earning. CEO Jeffrey Immelt said he wants the unit to see bigger growth by 2015. After the IPO, GE Capital Retail will be separated from GE group entirely.
The chief reason GE is opting for the IPO is that the business has not been seeing growth recently. On Thursday, GE’s shares were traded at $25.36, which was down 1.5%. It hit further low on Friday when it was traded at $25.18, down 0.70%. Experts believe if GE could curb its exposure to consumer lending business, GE could see its stock price ranging high.
The deal is currently pegged at $3.5 billion and unconfirmed sources reported that GE’s valuation in the IPO would be $22 billion to $25 billion. If the projected figure indeed becomes the real figure, it would be the highest ever IPO after Facebook.
Recent data from Bloomberg shows companies working in the field of consumer finance raised $10 billion through offering its equity in 2013, which was highest since the recession.
A fund manager called Gary Flam, who owns more than 81000 of GE’s shares said, “When you look at this business they’re spinning off, there’s little justification for why they should be in that business in the first place,”
GE’s CEO Jeffrey Immelt recently took steps to boost the company’s presence in sectors such as energy, natural gas, energy, oil and transportation. and instead are putting more effort into its industrial segments like energy, oil and gas and transportation.
At the same time, North American retail finance business is fetching the company $2 billion everywhere. To balance between the company’s increasing efforts to make the industrial sector a face-saver and to grow retail finance, IPO has been called.