STAMFORD, Conn. — One of the largest commercial real estate lenders in the country is on the threshold of becoming even more dominant. General Electric Capital Corp., the diversified financial services subsidiary of General Electric, has entered into a definitive merger agreement to acquire Chicago-based Heller Financial Inc. for $5.3 billion in cash, or $53.75 per share.

“GE Capital's planned acquisition of Heller Financial strengthens Capital's business positions in real estate, health care, vendor finance and aviation finance,” said Jeanne Terrile, analyst and vice president at Merrill Lynch in New York. “It gives GE Capital a bigger piece of the small and mid-market customer sector ($5 million to $250 million in revenues), which management says is one of the fastest growing markets in commercial finance.”

This entry into the small to mid-size finance sector will allow the company to bolster its capabilities and offerings, according to officials of Stamford, Conn.-based GE Capital. Michael Grondahl, senior research analyst at Minneapolis-based US Bancorp Piper Jaffray, agrees. “The acquisition may bring more customers into the GE fold at an earlier stage, and they may graduate to other GE credit companies as these companies get larger,” Grondahl said. “From a real estate standpoint, this move is going to help cross-selling. GE will have a whole variety of services with which to sell to these smaller businesses.”

Ben Kadish, a mortgage banker at Chicago-based Prairie Realty, attributed the merger to GE Capital's desire to extend its balance sheet without having to initiate new loans. “In one fell swoop, they get to extend the balance sheet and lose some inefficiencies,” he noted.

He said that the two companies are a good fit because they have complementary products, and GE Capital will gain Heller's mezzanine loan program, which is more effective than GE Capital's mezzanine program. He noted that the merger will make GE Capital the biggest player in the credit lending business.

This acquisition is the second largest in GE's history, exceeded only by the company's purchase of RCA in the mid-1980s. It also puts GE Capital back into the acquisition driver's seat. In 1998, Capital spent $17.2 billion on acquisitions and another $10.1 billion in 1999, according to Terrile.

“By the same token, the very modest $1.2 billion that Capital spent on acquisitions in 2000 doesn't appear to have wounded Capital's net income growth in 2001,” Terrile explained. “This deal serves to remind investors how important ongoing acquisitions are to GE Capital's earnings consistency.”

In NREI's latest ranking of the top direct lenders in commercial real estate published this spring, GE Capital ranked fourth with $9.5 billion financed in calendar-year 2000. The merger, which has been approved by the board of directors of each company, is subject to regulatory approval.

GENERAL ELECTRIC CAPITAL CORP.

Headquarters: Stamford, Conn.
Chairman/CEO: Denis J. Nayden
Total Assets: more than $370 billion
NYSE symbol: GE
Price as of 8/20/01: $41.53
52-week range:
$36.43 low, $60.75 high

HELLER FINANCIAL INC.

Headquarters: Chicago
Chairman/CEO: Richard J. Almeida
Total Assets: more than $20 billion
NYSE symbol: HF
Price as of 8/20/01: $53.24
52-week range:
$24.44 low, $53.24 high