Citigroup to Buy Associates for $31.1 Billion

Citigroup Inc., the No. 1 U.S. financial services company, said Wednesday it will buy Associates First Capital Corp., the biggest U.S. finance company, for $31.1 billion in stock to boost its consumer lending business.

The purchase of Dallas-based Associates, the former consumer finance arm of auto maker Ford Motor Co., marks Citigroup’s largest deal since its formation in 1998 and expands its international reach as well as its large credit card and commercial finance operations.

Citigroup, which runs banking, insurance and brokerage operations in more than 100 countries, said it will take a charge of between $600 million to $700 million after taxes for the purchase, but it also expects to save around $600 million.

It will pay a 53% premium for Associates, swapping 0.7334 a share of its stock for each Associates share.

Based on Citigroup’s closing stock price of $57.94 on Tuesday, the deal values Associates at $42.49 a share--well above its Tuesday closing stock price of $27.81.

Citigroup stock fell $2.56 to close at $55 on the New York Stock Exchange Wednesday morning, while Associates shares hit a 52-week high of $39.88 before edging back to close at $38.63, up $10.63 for the day. “In one step, we catapult our international earnings in these rapidly growing segments by more than 40%,” said Sanford “Sandy” Weill, Citigroup’s chairman and chief executive.

Separately, the Chicago Board of Options Exchange said it was investigating big option orders to buy Associates stock in the two days before Citigroup agreed to buy the finance company.

Citigroup’s own Salomon Smith Barney unit processed the orders, two traders said. Citigroup was not immediately available to comment while Associates referred questions to Citigroup.

Associates, the top provider of oil company charge cards, pulls about 24% of its revenue from overseas operations and has a strong foothold in Japan and Europe, two regions in which Citigroup is eager to expand.

Associates’ is focused mostly on consumer lending and commercial equipment loans and has about 2,750 branches in the United States and 13 other countries, as well as a $13.6-billion credit card portfolio.

“Over the last 20 years, they have grown their international business to where it represents nearly 40% of their total income,” Weill, a renowned Wall Street deal maker, told reporters in a conference call.

“It [Associates] would really increase Citigroup’s consumer profitability by about 40%.”