Photo via flickr user chuckthewriter
General Electric (GE) recently announced they are spinning off their successful North American retail credit card division. The IPO (Initial Public Offering) of GE’s credit card division, soon to be known as Synchrony Financial, is set for this week. GE has decided to sell off its retail credit card division in an effort to concentrate on its core competencies. What does this mean for credit cardholders? Could better rewards be on the way? Let’s take a look.
GE Expected to Raise $3.1 Billion in IPO
If you haven’t heard of GE, you must be living under a rock. GE is listed as the seventh-largest company in the world among the Forbes Global 2000. With annual sales of $143.3 billion and a market value of $259.6 billion as of May 2014, GE is one of the most successful companies worldwide. In fact, GE has a higher market value than the GDP of some small countries.
Investors worldwide are keeping a close eye on the IPO. Set to debut on the New York Stock Exchange, GE is selling a 15 per cent stake in the company to be named Synchrony Financial. GE expects to raise $3.1 billion, making it the biggest IPO of the year. An IPO of $3.1 billion puts a market value of $20.7 billion on the new company – not bad! This looks to top the IPO of Ally Financial (a former division of General Motors) in April of this year, when it raised $2.6 billion from investors.
Focusing on Core Competencies
The spinoff of Synchrony Financial is GE’s latest effort to focus on its core competencies, mainly industrial activities, such as gas drilling equipment and wind turbine manufacturing. While a lot of consumers think of GE as a manufacturer of consumer appliances, that’s only one of its business units. Over the years GE has expanded its business offering to include aviation, locomotives and lighting, to name a few.
The IPO of Synchrony Financial follows GE’s recent sale of NBCUniversal, the parent company of NBC and Universal Studios. Last year cable giant Comcast bought out GE’s remaining shares for the tiding sum of $16.7 billion.
Right now it’s a good news, bad news story for GE. GE’s net income increased 13 per cent in the second quarter of this year. This was boosted by strong numbers in its aviation and oil and gas divisions. Despite the strong results, the numbers were below analyst expectations.
What the IPO Could Mean for Cardholders
You probably aren’t aware, but Synchrony Financial is the issuer of store credit cards at popular North American retailers including JCPenney, Wal-Mart (exclusively in the U.S.) and the Gap. Up until 2010, Synchrony also issued credit cards for Canada’s oldest and most storied retailer, Hudson’s Bay, until it sold the portfolio to Capital One for $1.3 billion.
GE spinning off its lucrative credit card division is only the latest shot fired in the ultra-competitive credit card wars. Synchrony’s IPO follows a number of blockbuster deals in recent months. Just last year Aeroplan finalized a deal that saw over 500,000 CIBC cardholders jump ship to TD Bank. Canada Tire also recently sold a 20 per cent stake in its credit card division to Scotiabank for $500 million.
With Synchrony spun off as its own company, it will give the new company a chance to grow. Instead of competing with other GE divisions for capital, Synchrony will be masters of its own destiny. The new company can solely focus on growing the business and attracting new cardholders. This could mean improved rewards to retain current cardholders and better introductory offers, such as 0% balance transfers to encourage cardholders at rival issuers to jump ship. We could even see new deals struck with retailers looking to get into the lucrative store credit card business.
The Bottom Line
GE’s decision to sell off its credit card unit looks to be good news for cardholders and investors alike. Synchrony Financial will be able to solely focus on growing its business, without the restraints of falling under a big corporate umbrella. Depending on how the IPO goes Synchrony Financial should have plenty of cash to woo new cardholders with attractive offers like never before. This spin off could end up being a real boon for cardholders.
