GE unveils IPO plan to raise $3.1bn
New York, July 20, 2014
The success of General Electric's (GE) impending initial public offering for its private-label credit card unit could ride on investors' willingness to bet that a lukewarm consumer-led US economic recovery heats up.
GE began its investor road show for the IPO of the unit, to be called Synchrony Financial, as it revealed new details about the business, said a report in the Gulf Daily News (GDN), our sister publication.
Set for the end of the month, the IPO of 15 per cent of Synchrony is expected to raise around $3.1 billion, surpassing Ally Financial as the biggest US financial services stock flotation this year.
While the IPO could enjoy a positive initial reception given the strong demand for offerings this year and investors' eagerness to deploy cash in the market, its longer-term performance will likely be hitched to the strength of the belief in a consumer recovery.
"It's a good indicator and good investment based on people who believe the economy is going to continue to improve as it relates to the consumer," said David Menlow, president of IPOfinancial.com, an IPO and secondary offering research firm.
More than two-thirds of Synchrony's $9.4 billion in revenue last year came from its retail card business, which offers private label credit cards carrying brands of corporate partners such as Amazon.com, JC Penney, Lowe's Companies and Wal-Mart Stores.
Some of those retailers including JC Penney and Wal-Mart have struggled to find sales growth this year even as the broader economy has recovered, in part because a broad swath of consumers remains constrained by debt and worried about job prospects.
Still, they could eventually benefit from a strengthening recovery. A gauge of US consumer spending rose solidly in June, the US Commerce Department reported earlier this week, indicating the economy ended the second quarter on stronger footing.
Synchrony's rivals in the private label card business include consumer banks such as Citigroup and Wells Fargo.
Synchrony's other revenue comes from financing for bigger ticket consumer purchases, such as electronics or jewelry, and for healthcare procedures.
IPOs have performed well initially this year, with stocks rising 22pc on average between the final offering price and the first day's close, said Josef Schuster, founder of IPOX Schuster, which helps create index funds for IPOs.
"Risk appetite is quite high because the market is obviously very strong," Schuster said.
GE, which revealed details for Synchrony as it posted a 13pc rise in second-quarter profit, valued the rest of Synchrony at around $17 billion. GE plans to offer the rest of the business to its shareholders through an exchange late next year.
"It is the most shareholder-friendly execution," GE chief financial officer Jeff Bornstein said in an interview.
The separation is critical to GE's plan to slim down its GE Capital finance business and boost its industrial operations to 75 per cent of company earnings by 2016, up from 55 per cent last year. - TradeArabia News Service