Toronto-Dominion Bank has agreed to buy Chrysler Financial from private equity firm Cerberus Capital Management, L.P. (Cerberus) for $6.3 billion in cash, part of a major expansion of Canadian banking behemoths into the United States.
Under the terms of the agreement, TD Bank, a wholly-owned subsidiary of TD, will acquire Chrysler Financial in the U.S. and TD will acquire Chrysler Financial in Canada. The acquisition will give TD all of Chrysler Financials processes and technology as well as its existing portfolio of retail assets on both sides of the border, the bank said in a statement.
"This transaction represents a unique opportunity to purchase a great organic growth platform at an attractive price," said Ed Clark, Group President and CEO, TD. "Chrysler Financial is a well-run business with the capacity for significantly higher returns over the next several years. This acquisition will allow us to leverage our lending expertise and financial strength to expand our presence in a large North American market with tremendous potential upside."
The acquisition will give TD a platform for asset generation in the North American automotive lending market, enabling it to significantly grow its consumer loan portfolio. In addition to the existing dealer relationships that TD has in Canada and the U.S., Chrysler Financial dealer clients serve approximately 1 million customers, the statement added.
TD Bank is already one of the 10 largest banks operating in the United States, with some 6.5 million customers and 1,250 branches in 15 states and the District of Columbia.
However, 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 TD expects to rebrand Chrysler Financial under the TD brand by spring 2011, it said.
TD said the transaction is expected to be "neutral" on 2011 earnings, add approximately 100 million dollars in adjusted earnings in 2012 -- the first full year of operations -- and then generate a return on invested capital of approximately 20 percent in three to four years.
Chrysler Financial chief executive officer Tom Gilman will retain his position in the new company, which will be based in Toronto.
"Joining forces with TD will benefit both our customers and our dealer network," said Tom Gilman, CEO, Chrysler Financial.
Under Cerberus's ownership, Chrysler Financial has preserved its technology platform, retained top talent and maintained key capabilities, Gilman said.
Following the completion of the transaction, Chrysler Financial will continue to operate as a North American business overseen by Tom Gilman and headquartered in Toronto. TD expects to rebrand Chrysler Financial under the TD brand by spring 2011.
Chrysler Financial offers etail financing programs in the United States through franchised automotive dealerships of all brands. The automotive finance industry is the second largest non-mortgage consumer asset class after credit cards. It comprises about $650-700 billion in outstanding receivables and $350-400 billion in annual originations on a normalized basis. Chrysler Financial plans to focus on the prime market now.