Household International and Beneficial Corporation to Merge in $8.6 Billion Stock Transaction
Household International and Beneficial Corporation today announced a definitive merger agreement that will create one of the country's leading consumer finance and credit card companies.
Under the terms of the agreement, which has been unanimously approved by both companies' boards of directors, Beneficial shareholders will receive 1.0222 shares of Household common stock for each share of Beneficial common stock in a fixed exchange ratio. Based on Household's closing price on Monday, April 6, the transaction is valued at $150 per Beneficial share, or a total of over $8.6 billion. The transaction will be accounted for as a pooling of interests and is expected to be tax free to Beneficial shareholders.
The companies will have combined pro forma 1997 managed revenues of over $7 billion, a market capitalization of $24 billion, managed receivables of $62 billion and over 30 million customer accounts. The company will continue to be called Household International.
William F. Aldinger, Household's Chairman and Chief Executive Officer, who will be Chief Executive Officer of the combined company, said, "This is an outstanding and unique opportunity to combine two leaders in consumer lending. Finn Caspersen and his team have built a unique and highly valuable franchise at Beneficial. Together, Household and Beneficial have the financial strength, portfolio balance and expanded market presence that will allow us to provide superior returns for shareholders. Our employees and customers will also benefit from the combination. We expect Beneficial's branch network and strong brand name to benefit from our focus on technology and low cost operations. Furthermore, our combined distribution channels, complementary product capabilities, and thirty million customer relationships should lead to higher receivables and revenue growth."
Finn M.W. Caspersen, Chairman and Chief Executive Officer of Beneficial, will be Chairman of the combined company. Mr. Caspersen says, "In February, we announced that we would evaluate the full range of alternatives to create significantly enhanced value for Beneficial shareholders. This transaction delivers on that promise and creates a world class consumer finance company. We couldn't be more pleased with the result-the combination with Household. Together, we will be among the leading providers of consumer finance, private label and general purpose credit cards. We expect this transaction to reward everyone involved as it creates a stronger competitor with a highly promising future. The management of Household has a proven track record of bringing companies together, and we expect the integration to proceed smoothly, with minimal disruptions for customers."
Analysts have speculated since Beneficial, based in Wilmington, DE, indicated in early February it was putting itself on the block that a linkage of the two firms would be a good fit.
"They overlap in almost all their business lines-home equity, credit card operations, you name it. There's a lot of duplicated costs to be taken out," said analyst Steven Eisman at CIBC Oppenheimer. Household already has made deep cuts in its expenses since 1994 by selling non-core operations and the brunt of the cost reductions will likely come from Beneficial, analysts say.
Still, the companies expect the transaction to be accretive to Household's earnings beginning in 1999, based on growth opportunities and projected annual cost savings of approximately $450 million, or approximately 42% of Beneficial's 1997 operating expenses. The two companies have cost savings potential in their U.S. branch networks, private label credit cards, and corporate operations. To cover transaction costs, asset write-downs and other related expenses, Household expects to record a one time charge of approximately $1 billion at the closing of the transaction.
The transaction is subject to regulatory clearance and other customary conditions and the approval of both companies' shareholders. It is expected to be completed in the third quarter of 1998.
As a result of the merger, Household will have approximately 163 million outstanding common shares, before giving effect to its previously announced three for one stock split effective for shareholders of record on May 14, 1998. Approximately 67% of the combined company shares will be owned by current Household shareholders and 33% by current Beneficial shareholders. It is anticipated that the Board of the combined entity will have 17 members including four previous Beneficial board members. Household and Beneficial have granted each other cross options for 19.9% of the common stock outstanding of the separate entities.
Beneficial Corporation is a New York Stock Exchange listed financial services holding company. Subsidiaries of the company provide financial services through their various consumer finance, credit card, banking and insurance operations located in the United States, the United Kingdom and Ireland.
Household International, through its subsidiaries, is a leading provider of consumer finance and credit card products in the United States, Canada and the United Kingdom. HFC, one of Household's core businesses, is the oldest consumer finance company in the United States. Additionally, Household is one of the nation's leading issuers of private label and general purpose credit cards. Its principal card products include the GM Card and the AFL-CIO's Union Privilege card.
Goldman, Sachs & Co. and Merrill Lynch & Co. served as financial advisors to Beneficial. Morgan Stanley Dean Witter & Co. served as financial advisor to Household.