Pitney Bowes Inc. said Thursday it will sell to GATX Corp. of Chicago some of the assets it leases to other companies for $460 million to buy back shares and invest in its postal meters and other businesses.
Pitney Bowes will also contribute about $800 million in assets–generally big-ticket items such as aircraft–to a joint venture the two companies will create. The company plans to borrow about $600 million against the venture’s assets.
In all, Pitney Bowes aims to realize more than $1 billion to boost share repurchases and expand faster-growing, less-risky businesses such as managing mailrooms and documents for other companies. The moves also allow the company to shift debt from its balance sheet.
“I was pleasantly surprised they did this much at once,” said analyst Erick Lucera at Independence Investment Associates, which owned 2.6 million shares as of March 31. “But that’s what you usually get out of this company. Good management.”
GATX is a financial-services company, and one of its main businesses is renting out assets such as rail cars.
Its shares fell 19 cents, to $61.12.
Its GATX Capital Corp. unit will contribute another $200 million in assets to the venture, which will be managed by both companies.
For GATX, the transaction gives it control over a portfolio of so-called large-ticket financing, or packages of more than $1 million, for things such as corporate jets. About 91 percent of the portfolio has “B” grade investment ratings or better, said Joseph Lane, chief executive and president of GATX Capital.
“It’s a very, very strong, high-quality portfolio,” he said.
The transaction is the largest ever arranged by GATX Capital and one of the biggest for its parent company as well.
Stock of Stamford-based Pitney Bowes rose $1.50, to $70.50, in trading of 292,100 shares, more than the three-month daily average of 254,900. They earlier reached a record $79.37.
The shares have jumped about 43 percent because of its buybacks and because regulations from the U.S. Postal Service will require its customers to convert to high-speed meters by the end of 1998.
Its board boosted the share-repurchase program by 3.2 million shares, to 12.4 million. It has about 144 million shares outstanding.
The move will eliminate about 40 percent of Pitney Bowes’ external financing portfolio. It will continue to collect fees for managing the portfolio, said spokeswoman Sheryl Battles.
After it borrows against the venture’s portfolio, Pitney Bowes will be left with a $200 million equity investment in the asset pool. That will be the extent of its potential loss, Battles said.
“It’s a non-strategic business and it’s very high-risk,” said analyst Amit Chopra with Credit Suisse First Boston. “This is a signal of confidence that this management will do things to enhance shareholder value.”
Chopra said the transaction will bring increased earnings next year and Pitney Bowes probably will try a similar transaction in 1999.
While Pitney Bowes will “certainly look at” similar transactions in the future, “I don’t think we’ll see any one quite as large as that,” said Matthew Kissner, president of Pitney Bowes Financial Services.
Pitney Bowes will finance the $600 million loan first through a bridge loan and then through a general capital market loan. The borrowing arrangements, which involve “several major banks” will be completed soon, Kissner said.
Pitney Bowes has been trying to reduce the size of its external financing portfolio so it can focus on generating fees by managing the assets.
