Capital One Financial Corp plans to buy ING Groep NV's U.S. online bank for $9 billion in cash and stock, leapfrogging up the ranks of the largest U.S. banks, the companies said on Thursday afternoon.
The McLean, Virginia-based bank, best known for its credit card unit, will pay $6.2 billion in cash and $2.8 billion in stock.
That will help ING, a Dutch banking and insurance conglomerate in the middle of a breakup, repay the remainder of the money it owes to the Dutch government for a 2008 bailout. The company also will receive a 9.9 per cent stake in Capital One as part of the deal and will have the right to name a director to the U.S. bank's board.
The deal is the latest step in Capital One's efforts to transform itself from its credit card lending roots. Adding ING Direct USA's assets would bump Capital One up two places in the rankings to make it the nation's seventh-largest bank by assets, according to SNL Financial, a financial services data firm.
"Capital One is picking up market share at what they feel are reasonable rates," said Matt McCormick, portfolio manager with Bahl & Gaynor Investment Counsel. "They're thinking that now's the time to pick up market share by acquisition. It's a risk, but it's a calculated risk."
The U.S. bank will raise $2 billion in new capital and will offer debt of about $3.7 billion to help finance the deal, which is expected to close around the end of the year.
The Wall Street Journal had earlier reported the deal on Thursday.
According to SNL Financial, ING Direct USA is the 20th-largest U.S. bank. As of March 31, Capital One had $199.3 billion of assets.
ING has been restructuring since receiving a 10 billion euro bailout from the Dutch government in 2008. The European Commission and ING agreed on a restructuring plan in late 2009. The most surprising part of the plan was a mandate that ING sell its U.S. online banking operations.
ING had to reduce the size of its balance sheet dramatically, which forced the company to shed many assets, including its insurance operations and its Dutch mortgage business.
Last month ING paid 3 billion euros to the Dutch state, which included a 50 per cent premium, and said at the time that it would repay the remaining 3 billion euros by May 2012. But with the proceeds from selling its U.S. unit to Capital One, ING could repay the remainder much sooner.
Early repayment is an important step for the company: once free of its state restrictions, a European ban on acquisitions will be lifted and ING will have more pricing flexibility, allowing it to compete more easily.
Capital One said it expects to realize "modest" cost-savings of $90 million from the deal, and funding savings of $200 million annually. It said the deal would be accretive to earnings per share in 2012 and would result in "mid-single digit accretion" in 2013.
Shares of Capital One closed up 2.4 per cent at $49 on Thursday.
Morgan Stanley (MS.N), Barclays Capital and Centerview Partners LLC acted as financial advisers to Capital One and Wachtell, Lipton, Rosen and Katz, Mayer Brown and Loyens & Loeff acted as legal advisers. Deutsche Bank advised ING.