Capital One Financial Corp., the fifth-biggest credit card issuer in the U.S., agreed Wednesday to buy Onyx Acceptance Corp. for $191 million to increase its share of the California auto loan market by adding customers with good credit ratings.
Onyx shareholders would receive $28 for each Onyx share they own, Capital One said. The purchase price is 71% higher than Onyx's closing share price Tuesday.
The transaction would create the second-largest independent auto lender in the U.S., while helping McLean, Va.-based Capital One increase its financing in California, the nation's biggest market. It also would help Capital One add customers with the best, or so-called prime and near prime, credit ratings.
"There was very little customer overlap," said Onyx Chief Executive John Hall.
Shares of Foothill Ranch-based Onyx rose $10.96 to $27.26 on Nasdaq. The shares have risen 38% this year.
Capital One stock dropped 55 cents to $73.44 on the New York Stock Exchange.
Onyx operates the loan businesses of about 12,000 car dealerships in 37 states. California accounts for 25% of business -- the biggest share, Hall said. The company issued $2.5 billion in auto loans in the 12 months ended in June and earned $10.1 million.
"We are strong on the East Coast and they are strong on the West Coast," Capital One spokeswoman Tatiana Stead said. "The deal expands and strengthens our dealer relationships by the thousands."
Capital One said the acquisition was expected to be completed in the first quarter of fiscal 2005 and wouldn't affect earnings. Auto financing contributed $145 million to the company's $1.4 billion in profit for the 12 months ended in June.
JP Morgan Chase & Co. is the biggest independent auto lender. Capital One jumps ahead of Bank of America Corp., which was previously No. 2, and Wells Fargo & Co., Stead said.
As much as 85% of cars in the U.S. are purchased with auto loans. In the second quarter, auto financing accounted for two-thirds of General Motors Corp.'s profit, and three-quarters of Ford Motor Co.'s.