Friday, March 28, 2008

American Express Scoops GE Money?

American Express (AXP) recently announced that they have entered into an agreement to purchase Corporate Payment Services, GE’s commercial card and corporate purchasing business unit, for $1.1 billion in cash. The press release was tagged with American Express stock symbol but did not carry GE’s stock symbol. The problem with this communiqué is that it’s so Teflon coated its really hard to critical evaluate or understand.

It sounds like American Express is bulking up in an area that they already operate in and are removing a major competitor who likes to be No 1 or 2 in a market area. So they pay $1.1 Billion but it’s hard to develop a valuation. You do not see bottom line numbers. Some overall metrics are provided but you can be assured that the number crunchers and the Board’s of Directors had more extensive information to deal with. Apparently it’s not important for the investors to be more fully informed.

From GE’s point of view my guess is that to take it to the next level required a big spend on capital and IT with a more uncertain future. So they decided to fold and sell. They clearly have other fish to fry.

None of these business decisions are bad. Quite frankly they all seem to make a great deal of sense. So why not say so and leave investors with the feeling that good management is in place and this seems to be the correct choice today. Smoke screen info about head count in Salt Lake City without any comments about integration costs and potential lay-offs just adds to the confusion.