| July 18
July 18 The success of General Electric Co's
impending initial public offering for its private-label
credit card unit could ride on investors' willingness to bet
that a lukewarm consumer-led U.S. economic recovery heats up.
GE began its investor road show on Friday for the IPO of the
unit, to be called Synchrony Financial, as it revealed new
details about the business.
Set for the end of the month, the IPO of 15 percent of
Synchrony is expected to raise around $3.1 billion, surpassing
Ally Financial Inc as the biggest U.S. 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 Inc, JC Penney Co, Lowe's
Companies Inc and Wal-Mart Stores Inc.
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
Still, they could eventually benefit from a strengthening
recovery. A gauge of U.S. consumer spending rose solidly in
June, the U.S. Commerce Department reported earlier this week,
indicating the economy ended the second quarter on stronger
Synchrony's rivals in the private label card business
include consumer banks such as Citigroup Inc and Wells
Synchrony's other revenue comes from financing for bigger
ticket consumer purchases, such as electronics or jewelry, and
for healthcare procedures.
"My sense is this is fertile ground for a new offering,"
said Jack Ablin, chief investment officer for BMO Private Bank
in Chicago. "Holders of this paper, they have to believe in the
long-term health of the economy and the consumer."
IPOs have performed well initially this year, with stocks
rising 22 percent on average between the final offering price
and the first day's close, said Josef Schuster, founder of IPOX
Schuster LLC, 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 on Friday as it
posted a 13 percent 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. "It's
much more tax-efficient than selling the company outright for
The separation is critical to GE's plan to slim down its GE
Capital finance business and boost its industrial operations to
75 percent of company earnings by 2016, up from 55 percent last
"For GE, it's more about de-risking the company and focusing
on the areas in industrial where they want to focus their
growth," said Jim Corridore, an equity analyst with S&P Capital
(Additional reporting by Tanya Agrawal in Bangalore; Editing by