On October 14th, the Federal Reserve announced that they had approved General Electric’s (GE) plan to spin off Synchrony Financial (SYF) as part of GE’s mission to reduce the size of their North American financial entity. On October 19th, General Electric officially announced an exchange offer to shareholders: to exchange their General Electric shares for those of Synchrony Financial, with that offer expiring on November 16th.
So what does this mean for General Electric shareholders? Do they take the offer or stay put?
|General Electric’s (red line) and Synchrony Financial’s (blue line) stock growth dating back to Synchrony’s IPO in August of 2014 (click to enlarge)|
All this sounds good, so why the split?
The financial division of GE ran into some distress during the monetary crisis a few years ago when it held some risky loans. Once Lehman Brothers collapsed, GE’s shares started to drop as the public grew concerned with GE’s financial division. It was at this point that General Electric set its sights on becoming less dependent on that area of the company, and the split is part of an ongoing effort to trim down that sector of its business.
If you’re someone who holds stock in GE, this exchange might be something to seriously consider. Despite the potential risk, there’s a lot of upside in Synchrony Financial. They are currently the largest provider of private-label credit cards in the U.S. (based on purchase volumes and receivables) -- a significant statistic as a Federal Reserve study found that the private-label credit card business has outpaced general-purpose credit card growth. Synchrony is also in the works of striking a deal with Apple to include their multi-purpose cards in Apple Pay.