General Electric Co. revealed that it intends to sell a part of its credit-card unit in an initial public offering due to increased investor interest towards the card business. Currently the companys Synchrony Financial credit-card unit is considered the biggest issuer of credit cards in the names of retailers and other partners on the territory of the U.S.
General Electric Co. plans to spin off its retail finance business located in North America, which is estimated to about 17.5 billion dollars. Last year analysts, who work for Bernstein Research, said that that the units value could be up to 20 billion dollars, but the company refused to make any comments on that assessment. The post-tax earnings of the unit were reported to be 1.98 billion dollars in 2013, which is a 7% decline.
The sales generated by GEs credit-card unit for 2013 amounted to 93.9 billion dollars, and the units net earnings were estimated to 2 billion dollars, which is a decrease from the 2.1 billion dollars posted in 2012. One of the main reasons why General Electrics Co. is planning to hold an initial public offering for the unit is because it is trying to cut the companys dependence on its credit cards business and the income generated by it.
According to people with knowledge of the process, the company is trying to raise between 3 and 3.5 billion dollars, which is the reason why it considers selling up to 19.9% of Synchrony Financials shares in the IPO. The remaining shares of the unit are planned to be allocated between the current shareholders in a tax-free split-off which is to be held in 2015. Another possible case scenario for General Electric Co. is to sell some or all of the remaining shares.
As the Wall Street Journal reported, the portfolio manager Gary Bradshaw said that consumer lending “is certainly not GEs core business”. Mr. Bradshaw also commented: “Hopefully theyll be able to redeploy these assets and reaccelerate their earnings.”
General Electric Co. was mostly unchanged at $25.34 per share at 14:15 GMT in New York, marking a one-year change of +6.96%. The company is valued at $254 billion. According to CNN Money, the 14 analysts offering 12-month price forecasts for General Electric Co. have a median target of $29.50, with a high estimate of $32.00 and a low estimate of $26.00. The median estimate represents a +16.42% increase from the previous close of $25.34.
TradingPedia.com is a financial media specialized in providing daily news and education covering Forex, equities and commodities. Our academies for traders cover 
