Element Financial Corp. (EFN), the Toronto-based equipment finance company, agreed to buy PHH Corp. (PHH)’s North American fleet management business for $1.4 billion in cash to expand in the U.S. market.
The purchase price represents a multiple of 1.56 times the adjusted book value of PHH Arval, a Maryland-based unit of PHH, Element said today in a statement. The deal is expected to close by July 31, the company said.
The transaction “provides us with a fully integrated North American fleet management offering,” Element Chief Executive Officer Steven Hudson said in the statement.
The transaction is the largest to date for Element. Hudson said in a February interview the company planned at least two purchases this year totaling at least C$1 billion ($918 million) to expand its North American rail-car unit and enter the U.S. for vehicle fleet-management.
Element said it will have a combined total assets of C$10 billion on a pro forma basis following the PHH Arval acquisition. Element Financial’s assets have soared to C$4.23 billion as of the end of March, up from C$47 million three years ago.
Element plans to sell, on a bought deal basis, $750 million of subscription receipts, $250 million of expendable convertible debentures, and $100 million cumulative 5-year rate reset preferred shares, the company said in a separate release. In a bought deal, banks managing the secondary sale will be left holding any unsold shares.
The subscription receipt offering is being led by Bank of Montreal’s BMO Nesbitt Burns Inc. unit and the net proceeds will be used to fund the PHH Arval purchase, the company said.
Element said it had also obtained $1.36 billion bridge financing from the Bank of Montreal to finance the acquisition.
The company said the addition of PHH Arval is expected to add more than 10 percent to adjusted operating and cash earnings per share in 2015 and 2016, Element said.
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