A General Electric unit and private equity firm Blackstone Group will jointly acquire mortgage and vehicle fleet management company PHH for $1.8 billion in cash, the companies announced Thursday.
The $31.50-per-share purchase price is about a 13% premium to PHH's closing stock price of $27.81 on Wednesday.
PHH shares jumped in trading on the New York Stock Exchange.
PHH, which was spun off in 2005 from what was then known as Cendant Corp., consists of PHH Arval, which provides vehicle fleet management services to corporate and government clients, and PHH Mortgage, a retail originator and servicer of residential mortgages.
GE Capital Solutions, which already has a vehicle fleet management operation, will buy Mount Laurel, N.J.-based PHH and keep PHH Arval while selling PHH Mortgage to Blackstone immediately after closing.
The move comes at a time when the U.S. mortgage sector has been under pressure from weakening demand. The subprime sector, which focuses on buyers with weak credit histories, is facing record levels of defaults, and many independent lenders are facing cash crunches.
Other sectors of the mortgage market, including "alt a" loans that require little documentation from the borrower, are also weakening. Prime loans are still performing well, but many investors are concerned about subprime turmoil extending to other portions of the mortgage market and the broader economy.
GE is paying 16 times expected 2007 earnings of $1.95 per share, according to Reuters Estimates, which is based on one analyst's estimate.
PHH said in January it expected to post an after-tax loss of $22 million to $29 million for 2006 and return to profitability in 2007 due to $50 million in cost cuts, including a work force reduction.
The company anticipates origination of $41 billion in loans in 2007, it said in January.
The parties expect the acquisition to close in the third quarter.
Lehman Brothers advised GE and Blackstone on the transaction. JP Morgan also served as an adviser to Blackstone.
GE is the parent company of NBC Universal and CNBC.