Fully separating Synchrony will represent another achievement on that front. Synchrony focuses on the consumer and credit card business and GE offered up a portion of its holdings (~15%) in an IPO back in mid-2014. Synchrony has done well on its own and been able to grow earnings and deposits at a nice clip. At the time, the plan was to hand back the rest of the shares to shareholders at a later date, but over time the mechanism with which to do that has changed. Instead of classic spinoff, GE will shed its remaining SYF stake via exchange offer, whereby GE shareholders can swap GE shares for shares of Synchrony at a discount. Here are some additional details on the exchange offer:
The exchange offer is designed to provide GE shareholders an opportunity to exchange their shares of GE common stock for shares of Synchrony common stock at a 7% discount, subject to an upper limit of 1.1308 shares of Synchrony common stock per share of GE common stock. If the upper limit is not in effect, for each $100.00 of shares of GE common stock accepted in the exchange offer, tendering shareholders would receive approximately $107.53 of Synchrony common stock.
The final exchange ratio will be announced in a press release to be issued by 9:00 a.m., New York City time, on November 13, 2015, unless the exchange offer is extended or terminated. It will be based on the per-share values determined by the average of the daily volume-weighted average prices (“VWAPs”) for GE and Synchrony common stock for the three consecutive trading days ending on and including the second trading day preceding the expiration date of the exchange offer, currently expected to be November 10, 11 and 12, 2015. The final exchange ratio, when announced, and a daily indicative exchange ratio beginning at the end of the third day of the exchange offer period, will be available at www.edocumentview.com/GEexchange.
The exchange offer is expected to be tax-free for US shareholders and it is expected to expire on November 16th. The final ratio will be announced at that date as well. While there are a number of conditions attached to its completion, I doubt any will come into play. These exchange offers tend to be oversubscribed and sometime lead to some opportunistic trading.
GE’s CEO Jeff Immelt expects ‘the exchange will reduce the outstanding float of GE common stock by 6%-7%, and if fully subscribed, would represent the equivalent of about $18 billion-$21 billion in GE stock buyback.’ Pretty serious numbers. GE is making a bold bet and radically transforming its strategy after finding that its financials business didn’t deliver high enough returns. The stock has struggled at times, but recently attracted headlines after activist Nelson Peltz’s Trian Partners took a $2.5b stake in the company. While $2.5b is a lot of money, it’s only about a ~1% stake in the company, so the attention it got is pretty telling about the power of activists these days. Management seems to agree with many of the points in Trian’s whitepaper so perhaps this will be a more amicable relationship than we are used to seeing. This Deal Pipeline piece looks at what the activist’s strategy might be in this situation. Of course, if the stock price continues to lag, I have a feeling the relationship just might change.
Disclosure: Author holds no position in any stock mentioned.
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