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British bank acquires firm { November 15 2002 } Original Source Link: (May no longer be active)
http://www.washingtonpost.com/wp-dyn/articles/A56602-2002Nov14.htmlhttp://www.washingtonpost.com/wp-dyn/articles/A56602-2002Nov14.html
British Bank Agrees To Acquire U.S. Firm
HSBC Buying Household International
By Anitha Reddy
Washington Post Staff Writer
Friday, November 15, 2002; Page E03
HSBC Holdings PLC, Britain's largest bank, agreed yesterday to buy Household International Inc., a consumer finance company, for $14.2 billion in stock.
The London bank, which runs the 11th-largest U.S. banking operation, is further boosting its American presence with the acquisition, gaining Household's 50 million customers and its top-10 consumer credit card business.
"This deal brings together one of the world's most successful deposit gatherers with one of the world's largest generators of assets," said HSBC Chairman John Bond.
HSBC will pay $30.04 per share, a 34 percent premium on Household's $22.46 closing stock price Wednesday. Household shareholder will receive 2.675 HSBC shares for each Household share. The merger is expected to close in the first quarter of 2003.
HSBC's private banking presence is concentrated mainly in New York and San Francisco, but it will become a national network with the addition of Household's 1,400 offices in 46 states. HSBC's U.S. business is expected to account for 30 percent of total revenue after the deal closes, up from 12 percent.
Household's stock price jumped $5.04, or 22.4 percent, on yesterday's news, closing at $27.50 a share. HSBC's shares fell $1.85, or 3.3 percent, to $54.20.
Some Household investors will be disappointed with the terms of the deal, said Todd Pitsinger, an analyst for Friedman, Billings, Ramsey Group Inc. The stock, he said, is particularly cheap now at seven times earnings, well below its historical level of more than 10 times earnings.
Household, based in Prospect Heights, Ill., is the nation's second-largest consumer finance company. It focuses on lower-income borrowers and those with less-than-perfect credit histories. In October, Household agreed to pay as much as $484 million to settle Federal Trade Commission charges that it duped such customers into buying unnecessary insurance, excessive fees and exorbitant interest rates.
HSBC's previous forays into the U.S. market have been in pursuit of more affluent customers with stronger credit histories, said Mark Alpert, an analyst at Deutsche Bank, referring to acquisitions of banks New York Republic Corp. and Marine Midland and a joint venture with Merrill Lynch & Co.
"I wouldn't call this a natural extension of the U.S. operations of HSBC," Alpert said, "but it certainly gives them a dominant position in the marketplace."
Household has been hurt by high borrowing costs that have limited its access to capital.
"We've had to slow down growth in the last quarter . . . because of funding issues," said the company's chief executive, William F. Aldinger. "This solves that."
Moody's said it will consider upgrading Household's debt rating on news of the merger. Household issued an additional $900 million in stock last month to allay investor fears about its cash position and financial health.
The companies said the combined entity will allow each company to attract customers who now lie outside their target markets. HSBC will be able to sell Household services to non-U.S. clients with rocky credit histories, and Household can expand its base of customers with better credit.
HSBC is following in the footsteps of several major European banks, such as Royal Bank of Scotland Group PLC and BNP Paribas, which have been buying into the U.S market, although most of them have shied away from consumer finance companies in favor of commercial and investment banks and brokerages.
© 2002 The Washington Post Company
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