Capital One Financial Corp. said it will buy a health-care financing business owned by General Electric Co. for $9 billion, marking a new direction by the firm better known for its credit cards than for lending money to hospitals.
The move will greatly expand Capital One’s position in the booming health-care industry, where it is now just a small player. As part of the deal, Capital One will get $8.5 billion worth of GE’s existing health-care loans.
The deal is also the latest piece of GE’s dismantling of its once-massive financial-services business.
With the sale, GE will have sold roughly $78 billion of financial assets toward its goal of shrinking its banking business by $100 billion this year. Investors have urged the company to return to its industrial roots amid a wave of federal regulations and changing market conditions that have weighed on returns.
The sale price for the health-care financing business appears to have fallen short of initial estimates that valued it between $10 billion and $11 billion when GE began reaching out to potential buyers of the business in June, according to people familiar with the matter. The difference between the final sale price and the initial estimates is because roughly $2 billion of assets were excluded from the Capital One transaction, according to a GE spokesperson.
The GE unit lends money to financial companies, investors and developers across assorted parts of the health-care industry, where merger activity and stock prices have both been trending higher of late.
The unit includes senior housing, hospitals, medical offices, and medical devices. It provided more than $10.5 billion in financing for acquisitions, refinancings, working capital and other purposes in 2014, according to its website.
“This is a strategic investment in a specialty industry segment that we have been building out for the past several years,” said Michael Slocum, president of Capital One’s commercial bank, in a statement.
The deal would represent the fourth-largest acquisition by a U.S. bank since 2008, according to data provided by Dealogic. Capital One also acquired the online banking business of ING Groep NV for about $9 billion in 2011.
Although best known for its credit cards, McClean, Va.-based Capital One has transformed itself in recent years into a full provider of banking and lending services. It has more than $200 billion in deposits and $310 billion in assets, making it one of the nation’s largest banks.
Capital One said the deal doesn’t require formal approval from regulators, but added that it has been in discussions with them on the transaction.
The premium that is being paid to the value of the loans suggests Capital One plans to retain GE’s employees as it expands the business. In addition to its small health-care business, Capital One also has other lending operations that specialize in areas like energy and equipment finance.
In June, GE struck a deal to sell another lending business for more than the value of the loans it holds. Canada Pension Plan Investment Board, the country’s largest pension fund, agreed to pay $12 billion for a GE business that lends to investment firms so that they can buy midsize companies. GE valued the loans that the pension fund is acquiring at about $11 billion, meaning that the buyer paid about $1 billion for the business as a going concern.
Last month, the Federal Reserve gave GE a reprieve on tough new rules for big banks as the company pursues its plan to shed financial assets.
“We are on track to reduce our ending net investment by $100 billion by the end of 2015 and expect to be substantially done with our exit strategy by the end of 2016,” said Keith Sherin, chairman and chief executive of GE Capital, the company’s financial-services unit.
The ultimate goal is to reduce GE Capital’s ending net investment, or GE’s measure of assets, by $200 billion by the end of next year. That doesn’t include the divestiture of Synchrony Financial, a retail credit-card business GE spun off last year. GE still owns 85% of Synchrony and is expected to sell off that stake in the future.
Among the company’s other recent deals, GE has agreed to sell $26.5 billion worth of office buildings and commercial real estate debt to Blackstone Group LP, Wells Fargo & Co. and other buyers.
Capital One said it expects to complete the acquisition by the fourth quarter. Darren Alcus, president of the GE business, will become president of the combined health-care operations of both firms.
GE said it will hold onto financing businesses that relate to its industrial operations, including a unit that provides health-care equipment financing to customers of the business that is being sold.
Separately, GE said it was selling roughly $600 million of the unit’s real estate equity investments to an unnamed buyer.
By Robin Sidel and Kate Linebaugh