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.

Related Companies
Financial Federal Corporation (FIF)
Nicholas Financial, Inc. (NICK)
Thomburg Mortgage, Inc. (TMA)
CapitalSource, Inc. (CSE)
SLM Corporation (SLM)

Automakers have it tough these days as consumers are not only spending less money but also dealing with record oil prices. The unfortunate side effect has been slower-than-expected auto sales and a move by consumers to the less profitable fuel-efficient vehicles. The big three U.S. automakers are now preparing to confront these problems by cutting costs and taking other measures to protect themselves. The question is: Will it be enough?

General Motors Corporation (NYSE: GM) announced that it has pushed some planned capital expenses from the first quarter to later in the year in order to make sure it has enough cash in the event of a worsened downturn in the U.S. Meanwhile, Ford Motor Company (NYSE: F) executives said they were also considering further cost cutting measures to reach profitability in 2009. And finally, Chrysler said it would lower production at several plants in anticipation of weaker sales this year.

Despite the similar actions to cut costs, the automakers seem to disagree on the industry's direction. Chrysler noted that it believes the market will continue to weaken for the rest of the year while General Motors has indicated that it expects sales to rebound during the second half of the year. Howver, all of the automakers have agreed that the selling pace in the first two months of the year came in below projections.

There has also been some concern surrounding the financing subsidiaries that provide auto loans to consumers. In particular, analysts were concerned that GM's 49% ownership in GMAC require it to make further cash infusions in order to ensure liquidity. However, GM has denied that such injections are needed and that its financing wing remains in good shape.

In the end, automakers will likely face a tough rest of the year as they gear up for further cost cutting to meet their internal earnings goals. Investors may want to watch for a turnaround as a combination of that and cost cutting could result in higher-than-expected earnings and a boost in the share price. Combined, these factors make GM and F two companies worth watching!

Related Companies
Toyota Motors Corporation (TM)
Diamler AG (DAI)
Delphi Corporation (DPHIQ)
Nissan Motors Co. (NSANY)
Honda Motor Co. (HMC)

Micrel, Inc. (NDAQ: MCRL) may be providing power for its customers, but its shareholders have been feeling rather powerless. All that's about to change after a large activist hedge fund expressed its disappointment in the company and demanded that it immediately explore strategic alternatives in a Schedule 13D/A filing with the SEC. The news comes after shares have rallied off of their lows but continue to underperform the market.

Obrem Capital Management, which owns 9.6% of the company, believes that the shares are substantially undervalued and demanded the board take action to proactively enhance shareholder value. The hedge fund blasted management for failing to create shareholder value over the past decade despite the company's multiple competitive strengths. Obrem attributes these failures to a number of reasons that can be easily remedied via an acquisition.

Micrel operates from a strong technology platform with an attractive customer base and a solid reputation within the semiconductor industry. Unfortunately, the company's insufficient scale, poor outsourcing strategy, and bloated cost structure have caused problems. Micrel lags its peers in revenue growth, earnings growth, operating margin, and share price performance despite its multiple competitive advantages.

Obrem recommended that the board seek to unlock value by selling Micrel to a strategic buyer. The problems could be easily resolved in an acquisition through an increase in manufacturing scale and lower costs realized thanks to economies of scale. Additionally, the valuable customer base, top-notch technology, and strong balance sheet would ensure a healthy premium.

In the end, Micrel is a company that is trading below value thanks to problems that could be easily solved through an acquisition. Obrem is hoping that the board will at least setup an independent special committee to examine strategic alternatives, but it will be interesting to see whether or not the company sees eye-to-eye. This makes MCRL a stock worth watching!

Related Companies
Analog Devices Inc. (ADI)
National Semiconductor Corp (NSM)
Semtech Corporation (SMTC)
ON Semiconductor corp. (ONNN)
Texas Instruments Incorporated (TXN)

FedEx Corporation (NYSE: FDX) may be delivering to its customers on time, but its shareholders are another story. The package delivery company warned that its fourth quarter earnings would be hit by higher fuel costs and a slower economy. This is the third time in 12 months that the company has lowered its guidance, which has many investors on edge that things may get even worse before they get any better. In fact, Fedex noted that it doesn't expect things to get any better until after 2009.

FedEx is also widely considered to be an indicator of the larger economy, so any slowdown in this company could mean more pain in the broader economy as well. Chief executive Fred Smith continues to point to fuel as the big wild card as it climbed 42% in the fourth quarter. The company was able to mitigate some of the costs by charging customers an additional surcharge, but this obviously caused a slowdown in the volume of business that it conducted.

FedEx said that it planned to counteract the decline through reductions in its capital spending. The company plans to intensify its cost-cutting efforts while focusing on long-term measures like its aircraft replacement program and the expansion of its new Chinese domestic delivery service. In the end, it looks like the majority of the company's income in the near future will be derived from its business activities abroad. Meanwhile, the U.S. economy may take awhile to recover from slowed consumer spending and higher fuel costs.

Related Companies
United Parcel Service, Inc. (UPS)
AirT, Inc. (AIRT)
ABX Holdings, Inc. (ABXA)

General Mills (NYSE: GIS) is eating its competition for breakfast by getting into the complex world of commodity derivatives. The cereal-maker announced a 61% increase in net earnings that can be largely attributed to a successful bet on the fall of commodity prices. Meanwhile, the company also saw continued strength in customer demand and would have beat earnings by a healthy margin even without the one-time gain from commodity hedges.

General Mills saw its sales jump 12% amid product price increases and stronger shipments while its commodity hedge resulted in a one-time gain of 27 cents per share. The cereal-maker also raised its financial forecast for fiscal 2008 to reflect the one-time hedging and tax gains booked this quarter; the lack of a greater forecast suggests that the company will continue to pour more money into marketing its products.

Many companies prefer to hedge their bets against commodities that they use in order to offset price increases and it is not uncommon for these actions to turn a profit in volatile environments like the current one. Some companies like Goldman Sachs (NYSE: GS) even managed to turn a profit by betting against the very products they were offering investors! However, the big question is whether or not the hedges will last long enough.

Hedges that these companies use are often derivative securities like options or swap contracts. These securities are essentially contracts that let companies purchase products at a certain price and date in the future. For example, back in 2006, General Mills may have purchased grain for a dollar to be delivered in 2007 when prices are now two dollars on the open market. The process lets companies plan ahead for raw material costs and keep costs low during tough environments.

In the end, General Mills continues to be a strong company that is trading very close to its 52-week low. The commodity hedge proved to be a boost to its bottom line while its existing product sales still managed to outperform. How long this will last remains to be seen as food costs continue to rise, but this is definitely a stock worth watching in the meantime!

Related Companies
Ralcorp Holdings, Inc. (RAH)
Kellogg Company (K)
ConAgra Foods, Inc. (CAG)
Kraft Foods, Inc. (KFT)
The Hain Celestial Group, Inc. (HAIN)

NYSE Euronext (NYSE: NYX) recently unveiled two new initiatives aimed at increasing shareholder value. The exchange announced a 20% increase in its dividend rate along with a new $1 billion share buyback program. The moves are designed to help shareholders realize value in their investment that has declined more than 30 percent from its 52-week highs. However, the aggressive financial policies have some ratings agencies concerned.

The S&P ratings agency cut its outlook on the NYSE to negative from stable after the announcement of these new initiatives. Although the firm expects the exchange's cash flow generation to support the new capital distribution policy, the share buyback will widen the gap in the company's tangible equity, which is already negative, given the substantial goodwill on the balance sheet from the 2007 merger with Euronext.

In English, S&P is concerned that the NYSE may be taking on more than it can handle with a dividend. The NYSE also has a negative tangible asset value on its books due to the amount of goodwill (intangible assets) that it incurred when it acquired Euronext in 2007. The share buyback program will only further widen this gap since the company will be repurchasing its own equity and lessening that portion on the balance sheet while the goodwill remains the same. Finally, shareholders are also likely to demand more buybacks in the future given the exchange's strong cash flow generation.

However, there are also many positive sides to the announcement. Share buybacks tend to increase shareholder value by decreasing the number of outstanding shares. Since earnings remain constant, this results in an increased earnings-per-share number. The move demonstrates confidence in the company by management and the board of directors. Buybacks are designed to help shareholders assign a fair multiple to the target stock when it is trading below peer or intrinsic valuation.

Meanwhile, the effect of dividends on shareholder value continues to be a hotly debated topic. Nobel prize winners in the 1960's suggested that dividends were irrelevant and investors shouldn't care either way. However, dividends give investors the only true return on their capital. Recent research has also shown that companies issuing dividends tend to be more disciplined users of capital and give investors a higher return with less risk over the long term.

In the end, this news is both good and bad for the NYSE. The initiatives will likely increase value for shareholders but may come at cost of maintaining strong balance sheet. However, given the strong cash flows at the company this may be worth the effort since the firm won't find itself in any real risk in the future.

Related Companies
GFI Group Inc. (GFIG)
NASDAQ OMX Group (NDAQ)
The Bear Stearns Companies (BSC)
Investment Technology Group (ITG)

Datascope Corporation (NDAQ: DSCP) is no stranger to activist pressure after a large hedge fund won representation on its board last year. The board seat is now paying off as the medical devices company recently took action to sell off one of its key divisions and return the proceeds to shareholders. The move should help boost the firm's share price, which has been trading within a narrow range before breaking out late last week on the news.

Earlier this month, Datascope agreed to sell its patient-monitoring business to China's Mindraw Medical for $240 million in cash. The company also announced its intent to return the proceeds to shareholders in the form of a share buyback, special dividend, or combination to be determined when the transaction closes. These actions are designed to unlock value by encouraging investors to assign a fair multiple to the company's stock.

The move drew widespread support from shareholders, including 6.7% owner Ramius Capital. The activist hedge fund noted in a Schedule 13D filing with the SEC that the deal "provides for significant value for the patient monitoring business" and represents "the best interest of all shareholders". The activist also "expects that management and the board of directors will continue to explore opportunities to maximize value for all shareholders".

The last statement is of particular interest given Ramius' board presence. Shareholders can expect the activist hedge fund to continue working to unlock value in the company. The regulatory filing also revealed that the hedge fund and its partners remain net buyers of the stock, so investors can be sure that their interests are aligned. In the end, these factors make DSCP a stock worth watching!

Related Companies
Mindray Medical International Limited (MR)
St. Jude Medical, Inc. (STJ)
Medtronics, Inc. (MDT)
Masimo Corporation (MASI)
Abiomed, Inc. (ABMD)
Criticare Systems, Inc. (CMD)

As previously reported here at SECInvestor, a significant chunk of Yahoo's (NASDAQ: YHOO)value in a sale is its minority stake in Chinese search engine Alibaba. We also noted back in February that:

"Yahoo’s stake in Alibaba, which stands at around 39 percent, paid huge dividends after being acquired for $1.7 billion in August of 2005. Since then, the company has IPO’d and dramatically grew in market value while also continuing to grow its revenues at a break-neck pace. Interestingly, Alibaba is also concerned about the Microsoft acquisition, saying that it has a “reputation of using monopolistic tactics”. Foreign control of large companies is also a politically sensitive issue for Beijing, which has forced many prospective buyers to cut their stakes or sipmly delay the application process indefinitely."

Well, it looks like Alibaba is now going to try to take action as Microsoft Corporation's (NASDAQ: MSFT) purchase of Yahoo looks more likely.
Jack Ma, the English teacher that founded the company, plans on advancing a plan to repurchase the 39% of the company that Yahoo owns. Ma and others in the company are supposedly concerned about Microsoft's heavy handed management style as well as scrutiny from Asian users about a titan of American business owning such a large stake.

The WSJ is reporting that Alibaba has already hired a bank and financial adviser to work on the possible purchase details and financing. Though such a repurchase is anything but certain at this point, Alibaba's concern with the deal certainly makes a Microsoft advance more difficult to complete and much less attractive. This is probably the worst development from Microsoft's point of view since the announcement of its takeover bid, so be sure to watch the story as it develops.

Related Companies
Google Inc. (GOOG)
Time Warner Inc. (TWX)
R.H. Donnelley Corporation (RHD)

Visa Inc. (NYSE: V) is set to go public tomorrow in what promises to be the largest initial public offering in U.S. history. Shares are expected to price at $44 per share in a $10.2 billion IPO that is second only to Commercial Bank of China's $22 billion IPo in 2006. Many investors are bullish on the offering after MasterCard (NYSE: MA) shares more than tripled since its offering in 2006 while both companies have been posting spectacular growth numbers.

The first concern that many investors cite with Visa is the poor economy, but this is a relatively insignificant issue for several reasons. It is important to realize that companies like Visa and MasterCard have been able to thrive during the credit crisis because they do not extend credit to cardholders. Instead, it is the issuing banks that take on the credit risks and are now facing defaults. Visa makes the majority of its income by charging vendors a small transaction fee each time a card is used.

The second major concern is that consumer spending is in decline and will hurt earnings. It is true that consumer spending is down, but credit card usage isn't slowing down at all. In fact, industry reports show that usage is on the rise. More than 55% of all U.S. transactions by 2011 will take place with credit cards compared to just 40% in 2005. Spending on luxury goods may be slowing, but consumers are starting to use credit cards for even their staple purchases like food and gas.

The third major concern is that the IPO will be too expensive to buy directly. The Visa IPO has been anticipated for quite some time, so it is likely that shares will soar on their first day of trading. As a result, many investors pushed their funds into rivals like MasterCard in order to benefit from the so-called "peer upside" that often affects related companies. Other investors put their money in companies that stand to directly benefit from the IPO. These companies include JP Morgan Chase (NYSE: JPM), which will cash in $1.3 billion, and others like Bank of America (NYSE: BAC).

In the end, the Visa IPO is one of the most anticipated one on Wall Street this year and will set the mood for a long time to come. The company itself is safe from many of the credit concerns facing the economy and will likely maintain its impressive growth rate. However, the popularity will likely push shares up and force many investors to take positions in other companies that may benefit from the rise. Combined, these factors make V a stock worth watching!

Related Companies
Ameriprise Financial, Inc. (AMP)
Global Payments Inc. (GPN)
Gartner, Inc. (IT)
Heartland Payment Systems, Inc. (HPY)
UnionBanCal Corporation (UB)
American Express Company (AXP)

Conseco Inc. (NYSE: CNO) plans to stick to its guns after being pressured to give up two board seats to Steel Partners. The activist hedge fund demanded two board seats in order to effect a review of strategic alternatives for the troubled insurance company. However, Conseco revealed today that it has been reviewing such alternatives for several months and has engaged Morgan Stanley as its strategic advisor through the process.

Conseco CEO Jim Prieur said, "We share with Steel Partners, as well as our other shareholders, a common interest in taking actions that will increase the value of the company for shareholders. In that regard, we have been working with a major investment bank for several months regarding strategic alternatives and plans to maximize shareholder value for Conseco. We believe, and hope Steel Partners would concur, that we already are exploring courses of action suggested by them."

Conseco also revealed fourth quarter numbers yesterday that many viewed as highly disappointing. The insurance company posted a net loss of $72.2 million, or 39 cents per share, including a $23 million net realized investment loss and a $68 million valuation allowance for deferred tax assets. Conseco faces a considerable amount of work ahead as it stabilizes its fundamentals while working with the SEC to correct any past errors.

In the end, shares are up today after yesterday's drop because Conseco appears to be dedicated to conducting a review of its strategic alternatives. Typically, this means that managmenet would be open to a sale that could unlock substantial value for shareholders. Since the stock is artificially depressed for non-material reasons, the likelihood of a strategic or financial buyer is significantly enhanced. This makes CNO a stock worth watching!

Related Companies
Genworth Financial, Inc. (GNW)
Torchmark Corporation (TMK)
StanCorp Financial Group, Inc. (SFG)
American National Insurance Company (ANAT)
FBL Financial Group (FFG)
Lincoln National Corporation (LNC)
Presidential Life Corp. (PLFE)