General Electric Co. agreed to sell its jet-leasing business to rival AerCap Holdings NV, bringing together the world's two biggest aircraft financiers in a deal that's poised to reshape a market already roiled by the coronavirus pandemic.
Under the deal, valued at more than $30 billion, GE will receive $24 billion in cash plus 111.5 million shares, equivalent to a 46% equity stake in the combined entity, according to a statement Wednesday. GE will get an additional $1 billion from AerCap in either cash or debt when the transaction closes.
The tie-up gives rise to a behemoth lessor after a year in which the pandemic has hammered aviation and prompted airlines worldwide to cancel jet orders, delay deliveries and defer lease payments. The deal also marks the end of GE Capital, the company's once-mighty finance unit, the remnants of which will be folded into the broader corporate balance sheet.
"This marks the transformation of GE into a far more focused, simpler and stronger company," GE Chief Executive Officer Larry Culp said in an interview. "This is going to give us an opportunity to focus fully on our four industrial businesses."
GE climbed 2% to $14.28 before the start of regular trading in New York. AerCap rose 4.1% to $58.30 in light volume. Earlier this week, GE climbed to the highest level since May 2018, spurred by reports that a deal was in the works, while AerCap surged the most in almost four months.
For AerCap, the deal positions the company for an industry rebound as expanding vaccination campaigns prompt people to fly again after last year's unprecedented drop in travel demand.
"As the recovery in air travel gathers pace, this transaction represents a unique opportunity that we believe will create long-term value for our investors," AerCap CEO Aengus Kelly said in a statement. "This business combination will also strengthen our longstanding partnership with GE Aviation, which we look forward to working with closely in the future."
AerCap's $24 billion committed financing from Citigroup Inc. and Goldman Sachs Group Inc. marks the second-largest loan globally so far this year, after Verizon Communications Inc's $25 billion obtained last month, according to data compiled by Bloomberg. The large-sized deal could help boost global loan issuance which has suffered a 42% slump year-on-year.
Separately, GE maintained its 2021 financial forecasts, predicting adjusted earnings of 15 to 25 cents a share. That trailed the 26-cent average of analyst estimates compiled by Bloomberg.
In addition, the Boston-based company said its board would recommend a reverse stock split at a ratio of 1-for-8 and a "corresponding proportionate reduction in the number of authorized shares."
Offloading GE Capital Aviation Services, or Gecas, is the splashiest deal yet for Culp, who took the helm in 2018 with a mandate to rescue the US industrial icon. He has shed assets to slim down the unwieldy conglomerate, giving the stock a boost after a corporate meltdown that wiped out hundreds of billions of dollars in market value.
GE plans to use proceeds of the sale to cut debt by about $30 billion, for an expected total reduction of more than $70 billion since the end of 2018. The deal is expected to close in nine to twelve months, and Gecas's more than 400 employees will transfer to AerCap. The company will take a $3 billion noncash charge on the deal in the first quarter.
The transaction deal "will enable us to significantly de-risk GE and continue on our path to being a well-capitalized company," Culp said in the statement. "GE gains both cash and a meaningful stake in the stronger combined company, with flexibility to monetize as the aviation industry recovers."
Last year, GE completed the sale of its bio-pharmaceutical business to Culp's former employer, Danaher Corp., for $21.4 billion. In 2019, the company agreed to sell an aircraft-financing business for $3.6 billion to Apollo Global Management and Athene Holding Ltd. as the ailing manufacturer slimmed down its once-vast lending arm.
The expanded AerCap-Gecas lessor will gain negotiating leverage with manufacturers like Boeing Co. and Airbus SE, and is likely to get antitrust scrutiny from authorities and stakeholders. The new company also would be able to focus on the strongest airline customers during the pandemic recovery, when many will rely on lessors for financing flexibility.
"A potential combination of No. 1 and No. 2 in any market is usually reason enough for regulators to scrutinize a deal, but it doesn't necessarily mean that regulators won't approve it or that significant concessions will be required," said Aitor Ortiz, an antitrust analyst at Bloomberg Intelligence, said before the deal was announced. "The fact that the airline industry is facing turbulence right now may be considered in the analysis."