(New throughout, adds confirmation of agreement, details of
By Paritosh Bansal
NEW YORK, June 2 Element Financial Corp
has agreed to buy PHH Corp's auto fleet leasing business
for about $1.4 billion in cash, and will issue $1.1 billion in
capital to pay for the deal, the two companies said on Monday.
Toronto-based Element, which provides financing for
industrial, aerospace and automotive equipment leasing, will add
more than $4.6 billion in assets, including more than $4 billion
of net investment in fleet leases, the company said. It will
also assume $3.5 billion in debt.
The company is trying to exploit a sector largely abandoned
by big banks after the financial crisis.
"This transformative acquisition achieves all of the
strategic and financial objectives that we established when we
set out to expand our domestic fleet management business into
the U.S. market," Steven Hudson, Element's Chief Executive
Officer, said in a statement.
The deal for the PHH unit, PHH Arval, should add more than
10 percent to Element's adjusted operating and cash
earnings-per-share in 2015 and 2016, the company said. It is
expected to close by July 31.
PHH said it will net between $750 million and $800 million
from the deal. It should record an after-tax gain of between
$250 million and $300 million, it said.
Last September, activist investor Orange Capital LLC urged
PHH to hire a financial adviser to sell or float its fleet
management services and create a finance vehicle to own a stake
in its mortgage servicing and origination business. In February,
PHH said it was considering separating or selling its mortgage
and auto fleet leasing businesses.
"After carefully evaluating strategic alternatives, the
Board and management team believe this transaction best
positions our fleet and mortgage businesses to capitalize on
their distinct strategic opportunities while maximizing value
for our shareholders," PHH CEO Glen Messina said in a statement.
Element will finance the deal through a bridge loan and by
issuing $750 million in subscription receipts, as well as $250
million in convertible debentures and $100 million in 5-year
preferred shares, it said.
PHH shares slid 0.9 percent to $25.25, while Element shares
fell 2.6 percent to C$13.30 on Monday. The deal, which is
expected to close by July 31, was confirmed after markets
In a January interview with Reuters, Element Chief Executive
Steven Hudson said the company plans to seek acquisitions in the
United States and Europe. He predicted the company could have
C$9 billion to C$11 billion of assets in a few years, up from
C$3.3 billion at the end of last year.
Guggenheim Securities and BMO Capital Markets acted as
financial advisors to Element, while Blake, Cassels and Graydon,
and Cravath, Swaine and Moore acted as legal counsel to Element.
(Editing by Jeffrey Benkoe and Matthew Lewis)