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Avco Financial Services May Be Put Up for Sale

Lending: Textron's sale of the Costa Mesa-based consumer lender could fetch $6.5 billion, analysts say.

June 05, 1998|From Times Wire Services

Avco Financial Services, a Costa Mesa-based pioneer in consumer lending, may be put up for sale by its owner, aircraft and industrial products manufacturer Textron Inc.

Textron, which makes Cessna airplanes, Bell helicopters, automotive parts and industrial fasteners, said the high prices being paid for financial companies prompted the Providence, R.I., company to consider selling Avco.

"AFS has been a strong and consistent contributor to Textron's performance over the last 10 years," James F. Hardymon, Textron's chairman and chief executive, said Thursday in a statement. "However, with the recent consolidation in the financial services industry, a premium has been placed on quality consumer finance franchises."

Textron has hired investment bankers Goldman, Sachs and Co. and J.P. Morgan to look for bidders for Avco. The division could be sold whole or in part. A partial stock option is another possibility.

Sources estimated that Avco, which has 720 employees in Costa Mesa and 7,900 worldwide, could be worth as much as $6.5 billion. Textron bought Avco for $1.4 billion 1984.

Proceeds could be used to pay down Textron's $1.7 billion in debt, repurchase stock or make acquisitions. Textron has been making add-on purchases, buying more than 30 companies since 1992.

Textron management also is contemplating the sale because of concern over mounting competition, increasing write-offs from bad loans and a growth rate at Avco below those of its other operations.

Avco, which has been in business more than 70 years, usually loans money for used cars, appliances and items purchased on installment plans at rates higher than prevailing bank rates. Avco also underwrites insurance and makes loans secured by real property.

Last year, the division had $1.85 billion in revenue, up 5%, accounting for 17.6% of Textron's $10.5 billion total. It contributes $196.1 million in net income, 35% of the corporation's $558-million total.

The lending business is undergoing big changes. Credit cards are taking a bite out of consumer-lending operations such as Avco, which has 1,200 offices after selling 47 last year. Several mergers in the business also threaten Avco by dwarfing the company, which has about 2 million customers in 11 countries.

Household International Inc. agreed in April to buy rival Beneficial Corp. for about $8.25 billion, creating a company with a loan portfolio eight times heftier than Avco's. First Union Corp. agreed to buy Money Store Inc. for $2.1 billion in March. Conseco Inc. plans to buy Green Tree Financial Corp. for about $6.5 billion, and GreenPoint Financial Corp. agreed to buy BankAmerica Corp.'s mobile-home lending unit for $703 million.

Avco Financial Services could fetch between $5 billion and $6.5 billion, said E. Reilly Tierney, a financial services analyst at Fox-Pitt Kelton Inc., assuming a buyer pays about five times Avco's $1.3 billion book value. Household paid about five times Beneficial's book value, Tierney said.

"Anyone looking for branches might find it attractive," Tierney said. "Those who can cut more costs can pay more."

Among possible bidders are General Electric Co.'s GE Capital Corp., CIT Group Inc., Norwest Corp.'s consumer finance arm, Travelers Group Inc.'s Commercial Credit Co., American General Financial, and Washington Mutual Inc.

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