Transamerica to Purchase Borg Financial Subsidiary
Transamerica Corp. said Thursday that it has agreed to acquire Borg-Warner Holdings Corp.’s commercial finance unit, BWAC Inc., for $782.5 million.
The transaction, which is expected to close in about 30 days, will broaden Transamerica’s financial services offerings and allow Borg-Warner to pay down some of the debt it assumed in its $4.4-billion leveraged buyout in July.
BWAC, with $4.1 billion in assets, is the nation’s fourth-largest independent commercial finance company. BWAC’s net income in 1986 totaled $79.9 million.
The company was established in 1953 to provide financing to dealers of Borg-Warner’s Norge appliance line. Today, however, it provides inventory financing for dealers of such diverse brands as Sony, Maytag, Volkswagen and Hewlett-Packard.
“We view this acquisition as an excellent fit,” said Transamerica Chairman and Chief Executive James R. Harvey, who noted that the company already operates a highly profitable consumer finance unit. Harvey has converted Transamerica, which is based in San Francisco, from a sprawling conglomerate with interests in everything from airlines to motion pictures into a focused insurance and financial services concern.
‘Positive Contribution’
Harvey and his negotiating team flew to Chicago on Monday to wrap up the deal. He said in an interview Thursday that Transamerica would draw down bank lines of credit to make the all-cash acquisition. The company intends to refinance the borrowings by issuing long-term debt.
Harvey noted that the acquisition “will have a positive contribution to our earnings from the start.” He said BWAC’s earnings and the volume of its business have grown at a compounded rate of 15% annually for the past 25 years.
Several securities analysts applauded the transaction. “I like the fact that this is in a business in which Transamerica has already demonstrated a clear competence,” said Rudolph Martin, an analyst for Dean Witter Reynolds in New York.
Allan G. Tate, an analyst with Portsmouth Financial in San Francisco, said the deal could boost the price/earnings ratio of Transamerica’s stock by lessening the company’s reliance on the out-of-favor life and property-casualty insurance industries. “It makes Transamerica a purer financial services play.”
Takeover Target Rumors
Harvey has made no secret of his desire to expand Transamerica’s role in financial services through acquisitions. But he discounted speculation that one motive for the BWAC acquisition was to ward off potential suitors for Transamerica by adding to its debt.
In recent months, Transamerica has been a rumored acquisition target for Primerica Corp. and Ford Motor Co. Primerica denied its interest in the company, and Ford cooled speculation by announcing a deal to acquire U.S. Leasing International.
Transamerica’s stock, which has traded as high as $51.50 a share this year as a result of takeover speculation, the buoyant stock market and sharply higher earnings, closed Thursday at $39 a share, off $1.125.
Borg-Warner makes automotive components, chemicals and plastics, and provides information and protective services. The company had taken preliminary steps to sell 80% of BWAC in a public offering but decided instead to take the quick cash from Transamerica, a spokeswoman said.
