GE Banks for Itself

Company provides funding to complete purchase of one of its own units. Plus: adventure capital, and the mad rush to expense stock options.

What do you do if you have a deal to sell a division but the buyer is unable to borrow the money to pay for it?

Lend them the money yourself. At least, that’s what General Electric Co. is doing.

The conglomerate’s management agreed to lend $235 million to buyout specialist Francisco Partners LP to help that firm finance its $800 million purchase of Global eXchange Services. The reason for GE’s seeming largesse? The bond markets “were not good in June when we announced the agreement, and they’ve gotten worse since then,” GE spokesman David Frail told Bloomberg.

The option to provide financing was in the original agreement, Frail noted.

GE will record a profit of $300 million from the sale of the Web-based business-to-business marketplace, said Bloomberg. “By doing this GE gets to book a gain,” Glenn Reynolds, chief executive of research firm CreditSights Inc., told the wire service. “This is GE Capital being the highly accomplished lender using the balance sheet to do what they do best.”

Initially, investment bank Credit Suisse First Boston had agreed to provide Francisco Partners $445 million in loans to fund the deal, and planned to replace $235 million of that with high-yield bonds.

But last week GE Commercial Finance decided to buy the $235 million of bonds, freeing CSFB of its commitment, for the purpose of “expediting the closing” of the sale, according to a Moody’s Investors Service press release last week. GE will also own 10 percent of the unit once it is sold, reported Bloomberg.

Adventure Capital

There are not a lot of venture capitalists looking to flood Internet start-ups with cash these days, but that doesn’t mean the well is completely dry. In fact, after a long drought, a few deals are getting done.

In July, FurnitureFind Corp., which runs the site, secured a seven-figure round of financing from HQ Venture Capital, based in Austin, Tex. “The smart VC money realizes that the cycle has been down for so long that the [Internet] companies that have survived must be doing something right,” says Stephen Antisdel, CEO of FurnitureFind. But, he says, getting the infusion wasn’t easy. HQ conducted four months of due diligence before committing the funds.

Other recent deals include Inc., a maker of Internet-based software, which raised $1.25 million; and Nextone Communications Inc., which raised $3.5 million from Core Capital Partners and other investors.

Erik Brown, president of CGI Capital Inc., in Mundelein, Ill., says that VC firms are starting to put a toe back in the water. “There is so much money out there that has been on the sidelines for the last two and a half years,” he says.

Stock Options: Is Everybody Doin’ It?

For years, only two companies on the S&P 500 recorded their option grants as expenses: The Boeing Co., since 1998, and Winn-Dixie Stores Inc., since 1990. But in recent weeks, a stampede of companies has joined them.


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