Paramount Agrees to Sell Finance Unit to Ford : $3.35-Billion Deal May Help Firm Buy More Communications Companies
Paramount Communications, taking the last step to becoming a pure media and entertainment concern, said Thursday that it has agreed to sell its big finance arm to Ford Motor Co. for $3.35 billion.
The sale of Associates Corp., the nation’s third-largest independent finance company, will bring Paramount net proceeds of $2.7 billion and an after-tax profit of $1.3 billion, Paramount said. Much of the money may soon be used to carry out Paramount’s plans to expand by acquiring other communications companies, analysts said.
The sale is “the last step in our strategic development into a pure communications company,” Paramount Chairman Martin S. Davis said in a statement. “It is our intention to aggressively build these core businesses and accelerate our growth worldwide.”
The deal will greatly expand Ford’s financial services operations, a goal that the auto company has had for some time. With plenty of money to spend and growing confidence about its abilities to manage a financial service firm, Ford has lately considered a number of big acquisitions in the financial services area.
While Associates is largely a consumer finance business, analysts noted that its commercial finance operations are heavily involved in providing loans for large trucks and trailers. In this, it will fit well within Ford’s Financial Services Group, which also has emphasized truck financing.
In a statement, Ford Chairman Donald E. Peterson said Associates has an “excellent strategic fit with our existing financial services business and provides the basis for meaningful growth through an expanded product line.”
The Associates’ current chairman, Reece A. Overcash, will continue in the post, reporting to Kenneth Whipple, president of Ford Financial Services Group.
Price in Middle
The Associates’ consumer business includes real estate secured loans, bank credit cards, direct installment and revolving credit loans, mortgage banking and home relocation services.
Analysts said the price was in the middle of the expected range. At a meeting in June, Paramount’s Davis told analysts that an estimate of $2.5 billion was too low and that $5 billion was too high.
“It’s an OK price,” said an investment banker who was familiar with the transaction but did not represent either party.
The announcement came just three days after Paramount gave up a bitter, seven-week quest to take over Time Inc.
In Paramount’s court battle with its target, Time released a confidential document in which a Paramount investment bank, Morgan Stanley & Co., speculated that the sale of Associates could bring proceeds of $2.66 billion.
Wall Street sources said four to six companies made firm bids for Associates. Among those that looked the finance firm over were domestic and Japanese insurance companies, the credit arms of more than one auto maker and General Electric Co., the sources said.
GE Capital is the largest U.S. finance company, followed by Household Finance.
Paramount has recently been rumored as a possible takeover candidate, and the extra cash from the deal may make it more attractive to a would-be acquirer.
J. Kendrick Noble Jr., analyst with Paine Webber Inc. in New York, said he had expected that Paramount might wait until it was prepared to make its next acquisition before it sold Associates.
Paramount’s stock rose again in composite trading on the New York Stock Exchange, closing Thursday at $59.25 a share, up $1.125.
Operating Income Tripled
Last year, Associates reported gross revenue of more than $2 billion and operating income of $373 million, or 46% of Paramount’s total. The company posted record income for 12 years in a row.
Based in Dallas, the firm was founded in 1918 and acquired by Paramount in 1968. It has provided Paramount--formerly called Gulf & Western--insurance against downturns in Paramount’s more volatile entertainment businesses.
Between 1982 and 1988, operating income more than tripled--to $372.4 million from $99.4 million.
Yet Davis had also expressed frustration that Wall Street had not valued Paramount’s stock as high as he believed it deserved because the company was an amalgam of financial services and communications properties.