Element Financial will finally split up

             Element Financial has been talking about it for months or is it years.They gave a press release that states the split up will occur on October3,2016.This blog doubted that such a split would occur nor could Steve Hudson get shareholder approval for the split.But Element Financial announced in a recent press release that the split would go through and that one old Element Financial would give the shareholder one new Element Fleet Management and one new Element Commercial Finance.Shareholders approved the split unanimously.The new shares presumably would trade on October3 or shortly after. But at what price?
        The New Deal
      The vast majority of assets are in the now called Fleet Management division and so would be after the split as well.Element Financial (EFN)  now has total assets of almost $21 billion and 65% to 75% of them would go to the new Element Fleet Management with the other 25% to 35% going to Element Commercial Finance.Total debt now stands at $16 billion and likely the allocation of debt would be along the same lines. But no guidance has been given here and it is possible that debt will be allocated on a project basis and less debt will go to Commercial Finance.This will have a tremenduous impact on the price of the smaller stock.Consolidated earnings will be the same although there will be a 10 to 15% increase for 2017 according to guidance.So earnings for 2015 will be about $1.65 to $1.75 before tax and about $1.25 after tax for the whole entity.And earnings before tax for Commercial Finance will be about $.45 before tax;this means that earnings before tax for Element Fleet Management will be about $1.25 to $1.30 for the year.This likely means that Element Fleet Management will trade at close to it's present value. and maintain the same P/E ratio.And Element Commercial Finance should trade at close to the $5.00 to $6.00 range. It may not open there but it will climb to this level by mid-2017 and keep a P/E ratio a little less than Element Fleet Mangement as it's growth rate seems smaller.
        Conclusion
   Many investors(including me) thought that the split may not be beneficial to them.But Steve Hudson has engineered a split that should please almost everyone,that is all three penguins will be happy (as in the caption above).This blog does not see Element Fleet Management retreating;it may move gradually towards the $18 level.But the bonus to existing shareholders will be Element Commercail Finance for which they will own in equal proportion to their existing stock.In theory, this split may allow for a 25% to 33% gain to old shareholders by mid-2017.The starting price for Element Commercial Finance will depend on the allocation of existing debt but even a low initial price will likely see it trading at a minimum of $4.00 by year-end.                                                         

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