CIT Group Inc. (NYSE: CIT) shares plummeted Wednesday after the firm revealed that it had borrowed $7.3 billion to repay debt, making it a potential acquisition target at these cheap levels. The firm is seen by many to have manageable liquidity in the near-term and a stable credit outlook going forward, but shares are becoming so cheap that financial institutions that want to expand their middle market presence may be interested.
The problems at CIT stem from its dangerous portfolio of securities. The firm's latest 10-Q shows holdings in student loans and other securities that are facing substantial liquidity concerns. In fact, many believe that its portfolio is far worse than that of Bear Stearns, Merrill Lynch, or other large players.
Any potential acquisition would likely not occur at a premium, but rather simply offer shareholders an emergency exit. Meanwhile, the company itself said that it would continue to actively seek additional funding sources, as well as explore and execute on the sale of non-strategic assets and/or business lines. This suggests that the company would be open to any potential acquisition offer.
In the end, there are several courses of action that CIT could end up taking. If the firm decides to stand alone, it could either raise money through bank financing or issuing equity. Obviously, both of these are bad for shareholders unless they truly help the firm turn around. However, an acquisition could offer a great way for shareholders to exit their investment in the near term and cut losses.
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