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 (NYSE:LEAF) 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.
Alex Dumortier, CFA has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.