Capital One Acquires ING Direct USA - Analyst Blog
17 June 2011 - 10:30PM
Zacks
Capital One Financial Corp.(COF) announced an
agreement to acquire ING Direct USA, the online banking unit of
Amsterdam-based ING Groep NV (ING), in a
stock-cum-cash transaction valued at $9.0 billion. The deal would
catapult the company to fifth position from the present eighth, in
terms of deposits in the U.S.
Earlier this month, Capital One and General Electric
Co. (GE) had submitted their bids to acquire ING Direct
USA. Other companies that had shown interest in acquiring ING
Direct USA, were CIT Group Inc. (CIT), SJB
National Bank, Ally Financial Inc. and Citigroup
Inc. (C).
According to the condition with the European Union (EU) to get
government bailout during the financial crisis, ING Groep is
selling its U.S. unit. However, this deal would not affect ING
Direct’s operations in Canada, Spain, Australia, France, Italy,
Germany, the United Kingdom and Austria.
Terms of the Deal
Capital One stated that it would buy ING Direct for $6.2 billion
in cash and $2.8 billion in stock. For this, Capital One will have
to pay 55.9 million shares to ING. Price per share of $50.07 is
based on the 10-day average of the company’s closing prices for the
period ending June 15. This stock deal will make ING Groep the
largest single shareholder in the company.
Capital One would finance the cash part of the deal mainly with
the proceeds from public offerings of equity (approximately $2
billion) and debt (nearly $3.7 billion). The acquisition is
expected to close late this year or early next year.
Additionally, in relation to ING Groep’s 9.9% stake in Capital
One, ING Groep will be able to nominate one director to Capital
One’s board of directors. This stake also has a customary lock-in
period.
Furthermore, as a part of the agreement, Capital One and ING
Groep also renegotiated a state guarantee of ING Direct USA’s Alt-A
residential mortgage-related assets. Capital One would buy
non-guaranteed portion (about one-fifth) of this portfolio and the
remaining would be transferred to ING Groep for an equivalent
amount in cash by the Dutch government.
The deal is still subject to regulatory approvals from the
Federal Reserve and Dutch Central Bank.
Benefits
Capital One anticipates the deal with ING Groep to be accretive
to tangible book value immediately at the closing. It will also be
accretive to EPS in 2012 and further, in 2013, the results would
witness a modest betterment.
Additionally, Capital One expects that $90 million will be
realized from the consolidation of the systems, corporate staff
functions and platforms. Furthermore, the company also intends to
get $200 million of funding saves annually by optimizing the
management of the combined deposits. However, the company would
incur $210 million of merger and integration related expenses.
Capital One would get $92 million in assets, including $40
million of mortgage loans, at the closure of the deal. ING Direct
has about 7.7 million customers in its kitty, which would further
enhance Capital One’s market share in online banking sector.
Beyond these figures, Capital One will also receive additional
synergies from the cross-selling of ING Direct’s ShareBuilder
online brokerage products to its customers. Further, the company
will be able to provide its various products to ING Direct
customers. Also, the company will get other added benefits from the
balance sheet repositioning opportunities.
ING Direct mainly focuses on providing retail banking products,
such as savings, payment services, mortgages, consumer lending and
investment products, at a very low cost. These banking services
complement Capital One’s financial products and services quite
well. Furthermore, Capital One’s CEO Mr. Richard Fairbank commented
that the company might open branches in selected areas having a
large number of ING Direct customers.
Our Viewpoint
We believe with the addition of ING Direct USA, Capital One’s
shareholders and clients will benefit over the long term. The
combined company will create a valuable banking franchise to take
advantages of a large number of branch banking in attractive
high-growth markets and an online banking franchise with a national
reach.
Currently, Capital One retains a Zacks # 2 Rank, which
translates into a short-term ‘Buy’ rating. However, considering the
fundamentals, we maintain a long-term “Neutral” recommendation on
the stock.
CITIGROUP INC (C): Free Stock Analysis Report
CAPITAL ONE FIN (COF): Free Stock Analysis Report
GENL ELECTRIC (GE): Free Stock Analysis Report
ING GROEP-ADR (ING): Free Stock Analysis Report
Zacks Investment Research
Capital One Financial (NYSE:COF)
Historical Stock Chart
From Jun 2024 to Jul 2024
Capital One Financial (NYSE:COF)
Historical Stock Chart
From Jul 2023 to Jul 2024