Gangbuster price for GE’s Australia/New Zealand unit

ANZ boss Mike Smith could be forgiven for having a wry smile at the price paid by a KKR-led consortium for GE’s portfolio.

ANZ boss Mike Smith could be forgiven for having a wry smile at the two times plus book value paid by a KKR-led consortium for GE’s Australian consumer debt portfolio.

Like Jeff Immelt at GE, Smith is trying to reduce his capital base — and what better time to do so, when the world is awash with cash and there is seemingly not much of value to spend it on.

The $7.3 billion in assets up for grabs in the GE Australian consumer finance book had a veritable smorgasbord of potential buyers, from sovereign wealth funds down, running their eyes over the assets.

In the end the KKR consortium came in with, not the highest financial bid, but the most user-friendly package and that won the day.

The deal was leveraged around nine to one, which left goodwill of about $900 million and $700m of ­equity.

This showed there was plenty of debt finance support for the transaction and an attractive sale price.

GE was earning well in excess of 20 times equity on the deal and the consortium obviously thinks there is room for even more ­upside.

This compares with the Australian banks, which are earning about 14-16 times equity on their loan books.

The deal is subject to Foreign Investment Review Board scrutiny in Australia and New Zealand and faces a couple of hurdles, like a Wesfarmers pre-emptive, which gives it the right to take full control of the credit card assets should it so desire.

This is unlikely to happen, but just underlines some of the few loose ends on a deal that won’t close for four months.

All of which must give Smith some confidence as he prepares to sell about $8bn in assets from his Esanda car finance business.

The gangbuster price obtained by Credit Suisse and Morgan Stanley for GE shows the world is awash with cash looking for the right home.

Deutsche is handling the sale for ANZ and in two to three weeks will issue the information memorandum to kickstart the sales ­process.

Esanda has a loan book worth $16bn but only half of this is up for sale — essentially the broker and shop floor sales-led finance deals, with bank-initiated deals being kept in house.

The latter is seen as proprietary finance, which ANZ wants to keep on its books.

The KKR consortium paid a hefty two times plus book value for the GE consumer finance book.

The deal is a good one for GE, which sold at the top of the market as part of its plan to shrink its global consumer finance book.

While the KKR consortium paid top dollar, it is understood the other bids were at or above the $8.2bn headline price, but the ­condition-free bid clinched it.

The credit climate is unlikely to get much better, given the interest rate cycle, and this makes it a better time to sell an asset that was roughly one-third credit card debt, one-third personal loans and one-third consumer finance.

Based on the GE price, ANZ should be well placed to get a decent bid of about $10bn, assuming the debt climate remains as benign as it looks right now.

The KKR consortium included Varde — a Minnesota-based private equity house — and Deutsche Bank. It was advised by Moelis and Merrill Lynch, with Citi helping to provide the finance.

Varde runs a credit card business in Britain and Europe under the New Day brand and is well ­positioned to manage this transaction.

Gone to the dogs

THE ACCC has quietly cleared Greencross to buy the My Pet Warehouse store in South Yarra as it continues its acquisitive rollout through Melbourne.

In this case the continued presence of another Pet Warehouse store in nearby Toorak, along with a Petstock and Peters Wonderland retail outlet, was considered enough competitive tension in the market.

Greencross, which is becoming the Woolworths of the pet supply retail market (in terms of being acquisitive), has been buying up Pet Warehouse franchises across Melbourne.

The regulator said last week it wouldn’t oppose the deal.

Vodafone deal looms

VODAFONE Australia boss Inaki Berroeta makes clear that to his knowledge there are no talks right now between TPG Telecom’s David Teoh and his parent company, but the concept of getting together with a fixed-line ­operator is right on strategy. It’s early days yet in the TPG battle for iiNet, and Vodafone, like Optus, won’t be a player at this stage — but down the line the combination makes perfect sense.

TPG yesterday lost some ground after a huge rally last Friday, with its stock price down 2.7 per cent at $8.86 a share, while iiNet jumped 4 per cent to $8.84 on speculation of a higher bidder.

This included unlikely party M2, which, with a market value of $1.9bn, would be effectively doubling its market size by bidding more than $1.6bn for iiNet.

M2’s Geoff Horth has declined to comment on the possibility but it should be noted he is up against an all-cash bid and any move from M2 would be a mixture of cash and scrip.

M2 has about 1.6 million customers across its portfolio, which includes broadband, fixed voice and energy, against the 1.7 million subscribers at TPG.

The M2 formula has been based on acquisitions, so Horth would be doing his numbers, but having built the business around a mixture of energy and telecoms customers, this would be a big leap for him.

His stock price fell 3.1 per cent to $10.05 on the speculation.

Around the world Vodafone is increasingly merging with fixed-line rivals as it closes out its competitive position.

Berroeta has served as Vodafone Australia boss for almost 12 months, in which time he has advanced the work started by his predecessor, NBN Co boss Bill ­Morrow.

The business is now up and operating and a competitive force in the market, which puts it in great shape to do a deal with the likes of TPG when that door may open.

The battle in Australia is against the Telstra dominance and operating lead, given its earnings margin of some 53 per cent. This puts it well ahead of international peers in Germany, where the margins are more like 37 per cent, and the US at 32 per cent.

Telstra has 20 million customers, Vodafone 400 million, yet its operating profits are similar.