NEW YORK (Reuters) - GATX Corp GMT.N is offering more than $3 billion for General Electric Co’s (GE.N) rail car leasing business, a source familiar with the discussions said.
GATX is the leading bidder for the unit and negotiations are ongoing, the person said.
A GE spokesman declined to comment. GATX was not immediately reachable for comment.
CIT Group Inc (CIT.N), a commercial lender hit hard by the credit crunch, is also looking to sell its rail car leasing unit.
Lease financing company GATX, which controls one of the largest rail car fleets in the world, was also seen as a contender for CIT’s business, another source familiar with the matter told Reuters last week.
GE’s rail assets had a net carrying value of about $2.8 billion as of the end of last year on its balance sheet. The accounting value of CIT’s rail portfolio was about $4.4 billion.
For buyers, these assets could be attractive. Returns on investment for rail car leases are often over 15 percent a year and with the price of scrap metal rising, the value of rail cars is also rising.
CIT Rail owns and manages a fleet of more than 100,000 rail cars. GE Rail Services’ assets include 165,000 rail cars and 120,000 intermodal trailers, containers and chassis.
As the two units compete for buyers, GE could have a slight advantage over CIT because it may be able to finance at least a part of the deal if it wanted.
GE, which has been retooling its finance business over the last year, may also have more leeway to take a hit on price because it can better afford to. It had about $850 billion of assets as of June 30 and earned $22 billion last year, while CIT had about $87 billion of assets at the end of June and posted a $111 million net loss in 2007.
Last month, GE reached a deal to sell its Japanese consumer lending business and is also looking to part with its $30 billion portfolio of private-label credit-card operations, although it has acknowledged that deal will be tricky to get done in the midst of a credit crunch.
Editing by Richard Chang