TD Bank to Buy Chrysler Financial from Cerberus
Toronto Dominion Bank (TD) said it agreed to buy automotive financial products and services company Chrysler Financial for approximately $6.3 billion in cash from Cerberus Capital Management. The acquisition will allow Canada's second largest bank to gain a North American platform and expansion opportunities. It will also enable Cerberus, which paid $7.4 billion for Chrysler in 2007, to recover some of its failed investment.
The purchase is comprised of net assets of $5.9 billion and approximately $400 million in goodwill.
TD is eager to access Chrysler Financial's dealer clients, which serve approximately 1 million customers. The Toronto, Ontario-based bank expects that the business could generate a return on invested capital of approximately 20% in three to four years.
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"This transaction represents a unique opportunity to purchase a great organic-growth platform at an attractive price," said TD Group President and CEO Ed Clark. "This acquisition will allow us to leverage our lending expertise and financial strength to expand our presence in a large North American market with tremendous potential upside." He added, "This acquisition gives us that opportunity and also diversifies our lending portfolio."
The acquisition is expected to close in the second quarter of TD's fiscal 2011, pending regulatory approvals and other closing conditions. CEO Tom Gilman will continue to head Chrysler Financial, but its headquarters will be in Toronto. By spring 2011, TD expects to rebrand Chrysler Financial under the TD brand.
The transaction is expected to have Tier 1 capital impact on closing of approximately 55 to 60 basis points on a pro forma basis as at TD's last year-end. And while it should be neutral to earnings in 2011 on an adjusted basis, the transaction will add approximately $100 million in adjusted earnings in 2012, the first full year of operation.
As for Cerberus, "This transaction with TD is the right next step for the future of these businesses, their employees and customers," said COO Mark Neporent.
