General Acceptance Corp. Announces Major Transactions with Conseco Inc.

Strategic Insights -

General Acceptance Corp., a specialized consumer finance company, has entered into a series of transactions with Conseco Inc. that will significantly alter the company's ownership structure. Under the agreements, Conseco will acquire approximately 3.8 million shares of General Acceptance's common stock from the Algood family for $1.1 million, or 30 cents per share. Additionally, Conseco will purchase 16.0 million newly issued shares of common stock for $4.0 million, or 25 cents per share, and all of the Algood family's 12 percent convertible subordinated notes for $4.8 million.

Key Takeaways:

  • Conseco will gain approximately 90% ownership of General Acceptance Corp.'s outstanding common stock through the acquisition of 3.8 million shares from the Algood family and 16.0 million newly issued shares.
  • The acquisition price for the newly issued shares is $4.0 million, or 25 cents per share, which will cause an adjustment to the conversion price of the company's 12 percent convertible subordinated notes from $1.00 to 25 cents per share.
  • Conseco will also purchase all of the Algood family's 12 percent convertible subordinated notes for $4.8 million, totaling $14.8 million in notes.
  • If Conseco were to convert its $14.8 million in notes and exercise its warrant for 500,000 shares, it would own 97% of the outstanding common stock of General Acceptance Corp.
  • Malvin L. Algood and Russell E. Algood, founders and former officers of General Acceptance Corp., have resigned as officers of the company.
  • The company has also restructured its credit line with its primary lender, reducing the amount from $100.0 million to $75.0 million and ending the out-of-compliance situation.
  • The transaction is expected to be consummated within the next 45 days upon termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976.

Statistics:

  • Total value of notes and warrants owned by Conseco: $14.8 million + $4.0 million (exercise price of warrant) = $18.8 million
  • Total number of shares outstanding: 22.0 million
  • Percentage ownership: 90% (after acquisition) up to 97% (after conversion of notes and exercise of warrant)
  • Credit line amount: $75.0 million
  • Amount guaranteed by Conseco: $10.0 million
  • Restructured credit line expiration date: Jan. 1, 1999

Sources:

  • Business Wire, "General Acceptance Corp. Announces Series of Transactions with Conseco Inc.," March 12, 1998.