As activist rumors swirl around CIT Group Inc. (NYSE:CIT), the stock down 16 percent year to date and the company set to report earnings tomorrow, talk centers around CEO John Thain potentially making a bank purchase with the idea to become a systemically important financial institution (SIFI).
CIT to make an acquisition to fend off a potential activist investor
A new research report from BTIG research notes the company may make an acquisition to fend off a potential activist investor, working like a poison pill of sorts. Concerns about CIT’s potential purchase of a large bank include the belief that such a move would make the company more complex, resulting in making the company more difficult to sell, the report said. This would ensure the company management would remain in place, as many investors believe a sale of the company would be the best means through which shareholder value could be maximized.
The concerns come as Thain mentioned at a June 25 CIT Group Inc. (NYSE:CIT) investor day one strategy the firm might peruse would be purchasing a larger bank. Thain specifically noted that by exceeding $50 billion in assets, the magic line to become a SIFI, the financial institution would receive preferred treatment by the government.
CIT Group an attractive target Bank of Montreal
Rather than acquire another bank, some investors are hoping CIT could be the target. BTIG reports have noted on several occasions that CIT could be an attractive target for a Canadian bank with significant excess capital such as Bank of Montreal (NYSE:BMO) (TSE:BMO). BTIG, however, doesn’t look for a sale until the financial firm’s shares trade “comfortably north of $50,” a price at which the stock price would be at a premium to make the transaction a clear win for Thain and his management team. ValueWalk had reported in May that Thain purchased 40,000 shares of CIT stock. Thain has a strong track record for purchasing stocks in which he has been involved and then the shares rising. After his May stock purchase stocks jumped slightly but then traded lower near the purchase price.
BTIG thinks Thain might have set a floor for CIT Group Inc. (NYSE:CIT) shares on May 15 when he bought 40,000 shares of CIT at an average price of $41.54 for total exposure of $1.66 million. The stock moved to a high of $46.16 and then fell back, currently trading near $43.74. Speculation is an activist investor would be required to push the shares to deliver significant investor upside.