Ally Financial will not be completing its $2.7 billion acquisition of CardWorks, dealing a blow to its plans to diversify beyond auto loans.
The two companies said Wednesday they had agreed to terminate the merger agreement they had announced in February, citing the impact of the COVID-19 pandemic.
“Given the unprecedented economic and market conditions resulting from the COVID-19 global pandemic, [CardWorks CEO] Don Berman and I, along with our boards of directors, believe it is in the best interests of our customers and stakeholders to terminate the agreement,” Ally CEO Jeffrey Brown said in a news release.
“This was a difficult decision to make following a long process to bring two strong companies together,” he added.
Neither company will incur any termination or break-up fees as a result of the decision to scrap the merger.
The deal was the second-biggest bank acquisition announced in 2020. Privately-held CardWorks is the parent company of Merrick Bank, which specializes in providing consumer loans to borrowers with subprime credit scores.
As FinanceFeeds reports, “The acquisition of CardWorks was supposed to further diversify Ally’s product offerings, adding an established credit card platform, full-spectrum servicing and recovery operation and a nationwide merchant acquiring business.”
Brown had called it “an important milestone in Ally’s evolution to be a full-service financial provider for our customer” and described CardWorks as “an ideal cultural fit for Ally.”
On Wednesday, he said Ally’s “long-term strategic priorities remain intact” and its “industry-leading businesses and robust capital and liquidity positions will enable us to continue serving as a source of strength during these uncertain times for all of our customers.”
Ally’s shares fell 5.6% to $18.31 in Wednesday’s regular session before rallying by 9.2% to $20 in extended trading. Some analysts had suggested the company was paying a steep price for CardWorks and might be better off building a credit card business organically.