Thursday, April 30, 2009

ACAS Looking To Sell ECAS

Now that the excitement has left Pontiac, it seems to have found American Capital -- whose shares have topped $3 for the first time in months on news that the asset manager hopes to raise "up to $2 Billion" by selling its newly-wholly-owned ECAS subsidiary.

If Redstone is right, this might be a good time to liquidate EU assets to gain cash for US-based investments. On the other hand, if US policy in responding to the economic crisis is as inflationary as some expect, non-dollar holdings and earnings would escalate in value should the dollar collapse. In either case, significant cash would enable ACAS to avoid its current situation with its creditors.

ACAS isn't the only company looking to sell an asset manager just now. AIG hopes to sell an asset manager and an aircraft lessor for over $5B, and will liquidate other subsidiaries in public offerings in 2010.

I gather there is significant money on the sidelines at present. Assuming some buyers are interested in non-dollar-denominated assets (whether out of a philosophical inclination toward diversity or out of a specific interest not to hold dollars while the printing presses are pumping dollars into the world economy at the highest rate recently seen), the ECAS purchase would allow immediate diversification into a portfolio of middle-market companies with a track record of producing steady dividends, a group of management teams already in place willing to continue operating businesses they know and understand, and the right to collect debt repayments and interest and dividends from controlled companies in British pounds and in Euros at a time the dollar is already collapsing. Whether the buyer wants to buy the expertise of the managers, or just the assets, will surely depend on the buyer. However, I suspect that the ECAS offer reflects ACAS' willingness to consider all kinds of possibilities in connection with its post-credit-crunch turnaround.

The fact the dollar has fallen lately against the pound (as I learned last week while wiring money to the UK for a client) suggests that the value of ECAS may be climbing even before considering the appreciation that its portfolio companies would enjoy as the world gets back on its feet.

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