GE, Blackstone face termination of deal by PHH

Mortgage and vehicle fleet company PHH Corporation has announced that its planned $1.8 billion sale to industrial giant General Electric and private equity (PE) firm Blackstone is off, after the PE firm failed to obtain the required financing for the deal.

GE and the Blackstone Group had agreed in March to acquire PHH. GE was to retain PHH's vehicle fleet company PHH Arval, and sell PHH Mortgage to Blackstone, which had tied up financing for the purpose in March.

But as banks are now unwilling to provide financing under the terms they originally agreed to, Blackstone has been unable to come up with the money for the takeover.

The deal termination follows the crisis in the credit markets, which has made financing of leveraged buyouts (LBOs) much more difficult. The cost of financing has gone up, and other LBOs have also been cancelled, including student lender SLM Corp, audio equipment maker Harman International Industries and equipment renter United Rentals.

Private equity firms had been the engine for a merger boom, accounting for as much as 41 per cent of total US mergers till June 2007, but only 15 per cent of the mergers in the second half of 2007, when global merger activity declined 27 per cent, while US merger activity fell 46 per cent.

PHH has requested a termination fee of $50 million from the Blackstone Group, but a Blackstone representative said the company was not prepared to comment on whether it would pay the $50 million termination fee.

The representative also would not comment on whether Blackstone would take legal action against the banks that had originally agreed to finance the leveraged buyout - JP Morgan and Lehman Brothers.

''The board will determine in due course whether to continue to explore the company's strategic alternatives,'' PPH non-executive chairman AB Krongard has said in a statement.