GE entered an agreement to combine its GE Capital Aviation Services business with AerCap.
Under the terms of the transaction agreement, which was approved by the boards of directors of both companies, GE will receive consideration valued at more than $30 billion, including approximately $24 billion in cash, 111.5 million ordinary shares equivalent to approximately 46% ownership of the combined company with a market value of approximately $6 billion as of March 9, 2021, and $1 billion paid in AerCap notes and/or cash upon closing.
“Today marks GE’s transformation to a more focused, simpler and stronger industrial company,” H. Lawrence Culp, Jr., chairman and CEO of GE, said. “Coupled with our continuing efforts to strengthen GE’s performance, operations and culture, this deal brings GE closer to our future — delivering value for the long term and leading the energy transition, precision health and the future of flight.
“AerCap is the right partner for our exceptional GECAS team. Bringing these complementary franchises together will deliver strategic and financial value for both companies and their stakeholders. We’re creating an industry-leading aviation lessor with expertise, scale and reach to better serve customers around the world, while GE gains both cash and a meaningful stake in the stronger combined company, with flexibility to monetize as the aviation industry recovers.
“This is the right time to further accelerate our transformation. This action will enable us to significantly de-risk GE and continue on our path to being a well-capitalized company. Building on our multi-year efforts to solidify our financial position, we expect to use the proceeds to further reduce debt for a total reduction of more than $70 billion since the end of 2018.”
GE will transfer $34 billion of GECAS’ net assets, including its engine leasing and Milestone helicopter leasing businesses, to AerCap. Current GECAS purchase obligations will transfer to AerCap, and GECAS’ more than 400 employees also will transfer to AerCap upon completion of the transaction.
The combined company will be an aviation leasing franchise, bringing together complementary portfolios across aircraft, engines and helicopters. The transaction also will help GE focus on its industrial core — power, renewable energy, aviation and healthcare — while reducing GE Capital assets and generating proceeds to further de-risk and de-lever.
For Q1/21, in connection with the signing of the transaction agreement, GE will record an approximate $3 billion non-cash charge and report GECAS as a discontinued operation. At closing, the remainder of GE Capital, including Energy Financial Services (EFS) and the company’s run-off insurance operations, will transition to GE Corporate. This means GE will report industrial-only financials and move from three-column to one-column financial statement reporting.
After the deal closes, GE intends to use the transaction proceeds and its existing cash sources to reduce debt by approximately $30 billion for an expected total reduction of more than $70 billion since the end of 2018. GE also expects to continue to execute additional debt reduction and increase earnings to reach its industrial leverage target of less than 2.5x net debt to EBITDA over the next few years.
Under a shareholders’ agreement between GE and AerCap, at closing, GE will be entitled to nominate two directors to newly created seats on AerCap’s board. GE will be subject to a staged lock-up agreement, allowing it to dispose a portion of its stake after nine months and the entirety of its stake after 15 months. GE also will be subject to a customary standstill and other provisions.
AerCap secured $24 billion in committed financing from its banking group to support the closing of the transaction. The transaction is expected to close in nine to 12 months, subject to AerCap shareholder approval, regulatory approvals and other customary closing conditions.
“We are excited about this opportunity to bring together two leaders in aviation leasing. AerCap and GECAS both have industry-leading teams, attractive portfolios, diversified customer bases and order books of the most in-demand new technology assets,” Aengus Kelly, CEO of AerCap, said. “This combination will enhance our ability to provide innovative and attractive solutions for our customers and will strengthen our cash flows, earnings and profitability. This business combination will also strengthen our longstanding partnership with GE Aviation, which we look forward to working with closely in the future.”
PJT Partners, Goldman Sachs and Evercore acted as financial advisors to GE on the transaction, while Paul, Weiss, Rifkind, Wharton & Garrison; Clifford Chance; and A&L Goodbody acted as legal advisors.
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