Analyst: CIT shows takeover potential; Exelon gives ultimatum; regulatory OKs hang over Sun

By Cristal Cody

Tupelo, Miss., July 15 - CIT Group Inc. said late Wednesday the government will not provide aid in the short term and the company is "evaluating alternatives."

CIT said in a statement that it has been told there is "no appreciable likelihood of additional government support being provided over the near term."

Meanwhile, an analyst said cash-rich firms could be considering a buy for the troubled lender.

In other deals, a market source said Wednesday that a significant risk does remain that Exelon Corp. will walk away from its $8 billion hostile stock offer for NRG Energy, Inc., but a 10.00% price bump would likely gain approval from NRG's board.

Coming up, regulators are expected to delay Oracle Corp.'s acquisition of Sun Microsystems, Inc., while Sun shareholders were expected to approve the $5.6 billion merger at Wednesday's special meeting.

On Wall Street, stocks continued up for a third day Wednesday.

The Dow Jones Industrial Average closed up 256.72 points, or 3.07%, at 8,616.21.

The Standard & Poor's 500 index added 26.84 points, or 2.96%, to close at 932.68, and the Nasdaq Composite index climbed up 63.17 points, or 3.51%, to end at 1,862.90.

CIT future uncertain

Shares of CIT Group were halted in trading on Wednesday up 3 cents, or 1.86%, at $1.64. The stock has seesawed this week on worries of bankruptcy for the New York-based major lender to small and mid-sized companies.

CIT spokesman Curtis Ritter did not return a message for comment.

Bill Carcache, an analyst with Fox-Pitt Kelton Cochran Caronia Waller LLC, said in a research note released Wednesday to Prospect News that CIT had started the year with a favorable outlook after it converted to a bank and received $2.3 billion from the U.S. Treasury Department's Capital Assistance Program.

The panic in CIT shares came this week after the company said it may not receive capital through the Federal Deposit Insurance Corp.'s Temporary Liquidity Guarantee Program.

CIT has more than $7 billion in unsecured debt due through 2009, Carcache said.

"Although we continue to believe that CIT owns a strong group of middle-market commercial lending businesses with significant long-term value, we acknowledge that this means little given the company's inability to secure access to stable funding," he said.

The company, which was founded in 1908 and operates in more than 50 countries, does offer high chances for a buyout, Carcache said.

"The potential exists for a buyer with a strong balance sheet to acquire CIT, thereby unlocking significant value," he said. "Based on our estimates, tangible book alone will be approximately $7.00 per share in 2010."

Exelon gives ultimatum

Exelon chairman and chief executive officer John Rowe said in a letter to NRG shareholders on Wednesday that the election of Exelon's nine nominees to the board is a "vote for negotiations that can ultimately lead to a transaction."

But market observers seem to expect more for NRG shares.

"Although Exelon has stated that the 0.545 [a share] exchange ratio is its best and final offer, this statement is legally not binding," a market source said Wednesday. "The transaction is likely to boil down to whether Exelon is willing to raise its offer to $30.00 per NRG share."

NRG has rejected Exelon's bid of 0.545 of a share for each NRG share, an offer valued at $27.25 a share.

Princeton, N.J.-based NRG shareholders will vote on Tuesday at the annual meeting on Exelon's nominees and proposal to expand NRG's board to 19 seats.

Rowe said in the letter that if none of Exelon's nominees is elected, the Chicago-based energy company will walk on its proposal to acquire NRG after nearly nine months of effort.

"If this is the outcome of the vote, the desires of NRG stockholders will be clear. We will abandon our efforts to acquire NRG and go our own way," Rowe said.

On Monday, NRG reported that proxy advisory firms RiskMetrics Group Inc., Proxy Governance, Inc., Glass, Lewis & Co. and Egan-Jones Proxy Services recommended shareholders reject Exelon's nominees and expansion proposal.

"Given the recommendations by proxy advisors, we believe that Exelon is unlikely to be successful in its proxy contest," the market source said.

Shares of NRG rose 1 cent, or 0.04%, to close at $24.86.

Exelon's stock closed up $1.58, or 3.15%, at $51.66.

Potential delay for Sun

Sun Microsystems shareholders are expected to accept Oracle's $9.50-a-share cash buyout offer.

But the deal could be delayed by antitrust reviews beyond the companies' expected late August closing date.

Oracle said in June the U.S. Department of Justice is taking a closer look at the merger with a second request investigation.

"That's the thing that's hanging out there," said Brent Williams, an analyst with the Benchmark Co., told Prospect News on Wednesday.

Besides the United States, the deal must clear antitrust reviews in Canada, the European Union, China, Israel, Switzerland, Russia, Australia, Turkey, Korea, Japan, Mexico and South Africa, according to the companies.

The merger includes a $260 million termination fee.

Santa Clara, Calif.-based Sun announced the merger with Redwood Shores, Calif.-based software maker Oracle on April 20 after initial deal talks with Armonk, N.Y.-based International Business Machines Corp. fell through.

On Tuesday, Sun said it expected a loss of 24 to 34 cents a share for the fiscal fourth quarter ended June 30.

Sun's stock rose 4 cents, or 0.44%, to close at $9.21 on Wednesday.

Oracle shares added 88 cents, or 4.27%, to $21.51.

Shares of IBM closed up $3.97, or 3.85%, at $107.22.

Mentioned in this article:

CIT Group Inc. NYSE: CIT

Exelon Corp. NYSE: EXC

International Business Machines Corp. NYSE: IBM

NRG Energy, Inc. NYSE: NRG

Oracle Corp. Nasdaq: ORCL

Sun Microsystems, Inc. Nasdaq: JAVA

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