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Latest deal moves GE Capital divestiture program closer to $200B target

Lessthan two weeks removed from the one-year anniversary of General Electric Co.'s announcement of its plan to dramatically downsize , thecompany continues to make steady progress toward what had originally been presentedas a goal for the sale of assets representing approximately $200 billion in endingnet investment by the end of 2017.

WithGE's March 29 announcementof separate agreements to sell GE Capital's franchise finance U.S. hotel business and ,the company said that it had entered agreements for the divestiture of assets equatingto approximately $161 billion in ending net investment since the program's launch.A total of $138 billion worth of those transactions has closed, the company noted.

The planas presented April 10, 2015, by GE called for $160 billion in ending net investmentto be divested by the end of 2016, including $90 billion through year-end 2015.The company had accelerated the original timeline as the divestiture program proceededmore rapidly than it had initially envisioned, and GE completed sales amountingto $104 billion in ending net investment in 2015.

"Theirexecution has been flawless," said GE Chairman and CEO Jeffrey Immelt in hisannual letter to shareholdersfor 2015 in reference to the GE Capital management team.

"Theplan was complicated, challenging and risky. It involved one of the largest corporaterestructurings in history," he added, later stating that the plan is "aboutone year" ahead of schedule.

The saleof the franchise finance U.S. hotel business to Western Alliance Bancorp. involves a loan portfolio representativeof ending net investment of approximately $1.4 billion that provides real estatefinancing to owners of limited-service hotel properties. The Canadian business,which GE is selling to an undisclosed acquirer, has an associated ending net investmentof approximately $300 million.

"Combinedwith the sale of our Canadian Franchise business, this represents a significantportion of Franchise Finance, our last North American business to be sold as partof our plan to significantly reduce the size of GE Capital," said GE CapitalChairman and CEO Keith Sherin in a release.

WhenSherin spoke at an investor conference in May 2015, he said that the company sawno reason to wait to sell assets. But he cautioned that some of the assets couldtake longer than others to sell and may not fetch the same sort of relative valuationsas those for which agreements had been struck quickly.

"Wedo have a bank in Poland; that is a challenge for us," he said at the time,according to a transcriptof his remarks. "We've got a regulator there. … That could take a little longerand I don't think you are going to get a premium valuation."

But evenon that account, published reports suggestthat GE may be progressing toward a sale of the Gdansk, Poland-based institution,Bank BPH SA.

"Weare aware that interest in the bank has been significant and this is a tribute tothe value and potential that has been created by everyone that has been a part ofour journey so far. We are hopeful that after such a long period of discussionsGE will agree a transaction with a suitable bidder," wrote Bank BPH Presidentof the Management Board and CEO Richard Gaskin in a March letter in reference to a sale process that predated the broaderGE Capital divestiture program by severalmonths.

The banktook a goodwill impairmentcharge in 2015 in reflection of GE's projection that a sale of the institution wasnot likely to achieve a price in excess of tangible book value. GE Investments PolandSp. z o.o maintained an ownership stake of 83.7% in Bank BPH as of Dec. 31, 2015.

"GEpurchased the bank only months before the first signs of the global financial crisis,"Gaskin said in the letter. "Like most markets in the world the impact of thecrisis as well as the continued pressure on current and future revenue projectionshas reduced price to book value multiples in the Polish banking sector."

Accordingto transcript of his remarks, GE CFO Jeffrey Bornstein during a Feb. 17 investorconference said that European banking assets represented the immediate focus ofthe GE Capital divestiture program, aside from the franchise finance portfoliosthat would later be included in the March 29 announcement. He predicted that a "largepercentage" of the $50 billion or so in ending net investment remaining inthe divestiture program would get signed during the first half of 2016.

Immelt,in the annual letter, built upon his efforts to reposition GE within the investorcommunity as a high-tech, industrial company.

"Ina slow-growth world, there is no case for an unfocused conglomerate," he wrote."Can anyone see GE acquiring NBC or Insurance today, businesses with no tangiblefit? Yet, decades ago, this was applauded, and in the 1980's and 90's, it worked."

GE Capitalgenerated 60% of GE's earnings growth between 1990 and 2005, the letter states,and it accounted for 41% of the company's earnings from 2000 through 2015. But,Immelt said, it had become impossible for a large, wholesale-funded finance companylike GE Capital to generate acceptable returns in an environment that had changeddramatically in the aftermath of the financial crisis.

GE reiteratedin the March 29 announcement that it expects the divestiture program to be "largelycomplete" by the end of 2016.

AnotherGE divestiture revealed March 30 also speaks to the company's broader strategicrepositioning, though it does not involve a GE Capital business. GE said it hadagreed to sell to for up to $485 million.

"Thissale," Immelt said in a release,"is another example reflecting the attractiveness of GE's financial servicesbusinesses in the marketplace."