Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of Springleaf Financial (UNKNOWN:LEAF.DL) soared as much as 38% on Tuesday (they were up 28% in recent trading at the time of this writing) after the company announced it would acquire OneMain Financial from Citigroup in an all-cash transaction with a total consideration of $4.25 billion.
So what: Springleaf and OneMain are two of the largest U.S. providers of installment loans -- a form of credit carrying a high interest cost. The combination will produce a powerhouse in subprime lending with 1,967 branches across 43 states and just shy of $14 billion in in core consumer net finance receivables. Additionally, 200 branch closures are planned, beginning in mid-2016.
Springleaf expects the acquisition of OneMain to add to after-tax earnings this year (excluding one-time charges) and estimates incremental annual earnings will reach $470 million by 2017.
While Citigroup was a "motivated seller" -- OneMain Financial was considered a non-core asset up for disposal -- Springleaf will not have obtained a distressed price. Citi was patient -- OneMain had already been tagged for sale in 2009 -- and was reportedly also considering a public offering in order to get at least $4 billion for the asset.
Now what: The acquisition of OneMain is a transformational deal for Springleaf Financial, which reported $3.34 billion in shareholders' equity at the end of September and $578 million in net income for the twelve months ending in September. The market appears to be vindicating the deal and, for the time being, I think Springleaf deserves the benefit of the doubt.