CIT gets low odds; more deals likely after Xerox; Time Warner predicted to keep print segment

By Cristal Cody

Tupelo, Miss., Sept. 29 - Deal speculation drove shares of CIT Group Inc. up 31.74% on Tuesday, but a merger with another bank is a long shot, an analyst told Prospect News.

Meanwhile, Xerox Corp.'s $6.4 billion acquisition of Affiliated Computer Services, Inc. likely isn't the last of transactions for the business services sector, an analyst told Prospect News.

In potential situations, Time Warner Inc. is not expected to spin off its print division anytime soon, an analyst said in an interview on Tuesday.

Moving over to Wall Street, stocks slipped on Tuesday.

The Dow Jones Industrial Average fell 47.16 points, or 0.48%, to close at 9,742.20.

The Standard & Poor's 500 index shed 2.37 points, or 0.22%, to 1,060.61, and the Nasdaq Composite index lost 6.70 points, or 0.31%, to 2,124.04.

CIT path unclear

Media reports on Tuesday indicated that creditors are considering a plan to merge CIT with failed mortgage lender IndyMac Bancorp Inc. Yet another report indicates that CIT is negotiating a new credit facility of up to $10 billion.

"There is a lot of speculation going on currently," Sameer Gokhale, an analyst with Keefe, Bruyette & Woods, Inc., told Prospect News. "At one point in time, a merger like this was envisioned by investors who thought it would make a lot of sense for CIT to merge with another bank, but in the current situation, all bets are off."

New York-based CIT Group is one of the largest lenders to small and mid-sized businesses, and the firm has worked all summer to secure short-term funding.

"We know that CIT needs access to a larger deposit funding base. Deposit funding has to be a bigger part of their funding longer-term," Gokhale said.

"The question is whether or not regulators will allow CIT to proceed with some kind of merger. The reason I'm somewhat skeptical is that earlier this year, regulators denied CIT's request to transfer assets into its own bank," he said. "If something's not possible earlier this year, what's really changed in the minds of regulators?"

CIT representatives were not immediately available for comment.

The lender does have a better chance of securing a new loan, Gokhale said.

"I don't think it's too optimistic," he said. "Things are better now in the market, from the standpoint of market liquidity. It may be possible for them to get a new loan using substantially less assets."

The new credit facility could help it pay off a $3 billion loan received from bondholders in July, which carries a high interest rate, he said.

But a quick bank merger?

"That seems more far-fetched now," Gokhale said.

CIT's stock closed up 53 cents, or 31.74%, at $2.20 on Tuesday.

Pasadena, Calif.-based IndyMac's stock added 4 cents, or 39.04%, to end at 13 cents.

Looking for service match

Xerox said Monday it will buy out Affiliated Computer Services, the largest provider of managed services to government entities in the United States, for $63.11 a share in cash and stock.

Under the terms of the agreement, Norwalk, Conn.-based Xerox will pay Affiliated Computer Services shareholders $18.60 per share in cash plus 4.935 Xerox shares for each Affiliated Computer Services share.

The transaction hints of more deals to come in the sector, an analyst told Prospect News.

"What it does point to more importantly is there is going to be greater consolidation in this space," the analyst said. "Hardware companies have decided to look to service businesses to drive growth and expand their offerings."

Last week, Dell Inc. said it will buy Perot Systems Corp. for $3.9 billion.

Other firms also are being looked at as potential merger targets, the market analyst said.

Some of those include Computer Sciences Corp., India-based Tata Communications Ltd. and Unisys Corp. of Blue Bell, Pa.

"There's a few large deals to be had," the analyst said.

Dallas-based Affiliated Computer Services shares added $1.46, or 2.71%, to close Tuesday at $55.32.

Shares of Xerox rose 24 cents, or 3.13%, to $7.92.

Dell's stock dropped 50 cents, or 3.19%, to $15.17, while Perot shares lost 9 cents, or 0.30%, to end at $29.70.

Falls Church, Va.-based Computer Sciences shares rose 5 cents, or 0.09%, to $53.25.

Tata's U.S.-listed stock fell 35 cents, or 1.71%, to $20.07, and shares of Unisys closed down 1 cent, or 0.36%, at $2.74.

Time assets eyed for split

Time Warner spun off its cable division, Time Warner Cable Inc., earlier this year and the company also plans to spin off internet service provider AOL LLC this year.

The print division is the nation's largest magazine publisher with publications that include People and Sports Illustrated.

Although market buzz indicates Time Warner would spin off its publishing assets, the media giant is unlikely to take that route in the near term, Alan Gould, an analyst with Natixis Bleichroeder, told Prospect News on Tuesday.

"If there's a buyer at the right price, they would sell the division or pieces of the division," Gould said.

"In the current environment, I don't see a buyer paying a price that would make it worthwhile for Time Warner to sell the publishing division," he said. "Nor do I think they really want to sell it right now off of depressed earnings. They've put a lot of costs into that division."

Time Warner shares lost 14 cents, or 0.48%, to close at $29.23.

Shares of Time Warner Cable rose $1.25, or 2.94%, to $43.75 on Tuesday.

Mentioned in this article:

Affiliated Computer Services, Inc. NYSE: ACS

CIT Group Inc. NYSE: CIT

Computer Sciences Corp. NYSE: CSC

Dell Inc. Nasdaq: DELL

IndyMac Bancorp Inc. Pink Sheets: IDMCQ

Perot Systems Corp. NYSE: PER

Tata Communications Ltd. NYSE: TCL

Time Warner Cable Inc. NYSE: TWC

Time Warner Inc. NYSE: TWX

Unisys Corp. NYSE: UIS

Xerox Corp. NYSE: XRX

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