Dutch insurer Aegon
The deal makes sense for Aegon, as the company's $20 billion debt load -- much of which is a result of its 1999 purchase of Transamerica -- has been putting pressure on its credit rating, and the transaction will allow it to reduce its debt by about $1 billion.
For GE, however, the deal points to a growing dependence on its financial services business, and highlights its commitment to lean on it even more in the future.
A great many investors purchase stock in General Electric because it's viewed as one of the most diverse businesses in the world. Indeed, the company is jokingly referred to as a mutual fund, but with each acquisition GE is becoming more of a financial conglomerate than an old-economy industrial giant.
CEO Jeffrey Immelt is committed to growing and transforming GE Finance into a much larger and more flexible financial services firm. Since taking the reigns in 2001, he's injected a great deal of capital into the unit, purchased the lending divisions of Abby National and bankrupt Conseco, and shed GE's underperforming bond insurance business to PMI Group
Don't get me wrong here, GE is still involved in nearly every business imaginable, and I personally view the strategy as a positive, but as an investor you should be aware of what the bottom line is comprised of. In 2003, GE Finance will account for nearly 50% of earnings, and with Immelt's demonstrated commitment to acquisitions, that number will continue to grow.
Again, I like the strategy, which is why I began a position in GE shares nearly two years ago, but it's important to realize where the earnings, and a good deal of the future growth are coming from.
A final plus side is that, with divisions all over the financial services arena, GE Finance is a diverse business in its own right. So all in all, if the company maintains its discipline and sticks to fairly priced deals that are accretive to earnings (at least in a reasonable timeframe) the strategy could go a long way to returning some sizzle to GE's bottom line.
Mathew Emmert owns shares in General Electric. The Motley Fool has a disclosure policy.