TORONTO — TD Bank Group (TD) and Cerberus Capital Management today announced an agreement under which Chrysler Financial will be sold to TD for cash consideration of approximately $6.3 billion. The purchase is comprised of net assets of $5.9 billion and approximately $400 million in goodwill. TD does not intend to issue common equity in connection with this transaction, reported F&I and Showroom.
Under the terms of the agreement, TD Bank will take over Chrysler Financial in the United States and Canada, as well as the former captive finance company’s processes, technology and its existing portfolio of retail assets on both sides of the border. Following this transaction, the business — combined with TD's current platforms in Canada and the United States — will be positioned as a top 5 bank-owned auto lender in North America.
"It's the foundation we need in the U.S.," TD Chief Executive Ed Clark said on a conference call. "We needed franchises to generate assets. And, this is an asset class that has held up well during the cycle. We can take this platform and grow it, and grow it a lot faster than we're assuming."
The acquisition will give TD, which has spent approximately $20 million over the last six years to build its U.S. Consumer bank, a platform for asset generation in the North American automotive lending market, enabling it to significantly grow its consumer loan portfolio. Earlier this year, TD bought Greenville, S.C.-based South Financial Group Inc. and three troubled Florida banks from the Federal Deposit Insurance Corp. to extend its footprint into the U.S. eastern seaboard from Maine to Florida. With this purchase of Chrysler Financial, TD now has more bank branches in the United States than in Canada.
In addition to the existing dealer relationships that TD has in Canada and in the U.S. marketplace, Chrysler Financial's dealer clients provide the company with access to one million customers. TD expects that the business could generate a return on invested capital of approximately 20 percent in three to four years, once it is operating at a steady run rate for target originations.
With about 1,850 employees in Canada and in the United States, Chrysler Financial has more than 45 years of operating experience in the consumer and commercial auto financing market. It is one of the largest auto financing firms in North America. In the United States, the automotive finance industry is the second largest non-mortgage consumer asset class after credit cards. It comprises about $650 to $700 billion in outstanding receivables and $350 to $400 billion in annual originations on a normalized basis.
Offering a hint at what segment Chrysler Financial will target, officials with TD said the former captive will focus on the prime market.
"Joining forces with TD will benefit both our customers and our dealer network," said Tom Gilman, CEO of Chrysler Financial. "Under Cerberus's ownership, Chrysler Financial has preserved its technology platform, retained top talent and maintained key capabilities. This transaction positions us for future growth with the financial strength of TD, one of the soundest, best capitalized and best managed banks in the world."
The acquisition is expected to close in the second quarter of TD's fiscal 2011, pending regulatory approvals and satisfaction of other customary closing conditions. Following the completion of the transaction, Chrysler Financial will continue to operate as a North American business that will be overseen by Tom Gilman and headquartered in Toronto.
TD officials said they expect to rebrand Chrysler Financial under the TD brand by spring 2011.
"This transaction takes our auto finance business to a new level and gives us access to a North American platform, top talent and systems and technology capable of processing over 2 million credit applications per year. The Chrysler Financial management team and sales force have a proven track record and extensive industry experience and will complement our existing lending expertise."
