CIT: Acquirer Or Acquiree?
Jeff Aronson of Centerbridge Partners spoke at the Ira Sohn Conference, and gave an equity idea, despite Aronson being primarily a private equity guy.
Aron said that he really likes CIT Group Inc. (NYSE: CIT), and has continued to purchase the stock since the company's bankruptcy a few years ago.
CIT, which provides commercial financing, leasing products, and other services to small and middle market businesses has many enviable assets either as an acquirer or potential acquiree.
Aronon said that CIT is not bank, even though it has bank assets. It funds itself through the credit markets instead of through deposits. However in 2002, the company began to stray away from its core assets, and did some LBO and commercial real estate lending. As the economy faltered, these particular assets did not do well.
In 2009, the company had an astounding $12 billion worth of debt maturing that year, something the company could not handle. Its largest creditors provided the company $3 billion to help it restructure, but it ultimately filed Chapter 11 in the fall of 2009.
It was a quick bankruptcy, and the company was in and out of Chapter 11 in 38 days.
The company is trading below book value of $45 as of March 31. The company is trading far below its instrinsic book value of $59, which includes $7 in fresh start accounting, $7 of net present value of the company's deferred tax asset, which would be valuable to an acquirer.
Aronson thinks CIT is fundamentally misunderstood, due to the complexity of its financial statements, and because of the fresh start accounting. As such, Wall Street is all over the place in terms of earnings per share for CIT in 2011.
Aronson said there are two potential events on the horizon, buying a business, or getting bought.
The company has $12 billion in cash, and a tier 1 ratio of 20%, well above what is needed. CIT management has stated that it is interested in buying a retail bank, and Aronson mentioned Valley National Bancorp (NYSE: VLY) as a potential target. If CIT bought Valley National Bancorp, it could be worth as much as $64 per share.
On the other hand, names like Wells Fargo (NYSE: WFC), HSBC (NYSE: HBC), US Bancorp (NYSE: USB) and Toronto-Dominion Bank (NYSE: TD) could potentially buy CIT, as these banks have significant excess cash that needs to be put to work. CIT's lending platform is a key to a bank, as it cross sells CIT's products. Aronson said that CIT could go private around $65 per share.
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