Tyco to Buy CIT Group for $9.2 Billion in Stock, Cash Deal
Tyco International Ltd. said Tuesday that it plans to buy CIT Group Inc. for about $9.2 billion in stock and cash, adding a financing component to its broad array of businesses.
The deal will add a significant weapon to Tyco’s corporate arsenal, allowing it to finance client purchases of its services and products that include electronic equipment, fire and security systems and disposable medical supplies. The company already lends money to clients, but CIT’s expertise and access to large amounts of capital will open new fronts for financing, company officials said.
For CIT, which financed sales of Studebaker autos nearly a century ago, the deal should immediately provide $4 billion to $6 billion in new financing opportunities in the United States and abroad, Tyco Chief Executive Dennis Kozlowski said.
“Our operating managers have continued to ask for more capital to exploit these excellent growth opportunities,” Kozlowski said. “Adding a finance unit allows us to capture this growth to a greater extent while improving our capital efficiency in terms of asset turnover and return on capital.”
He added that it made more sense to buy a financing arm than to create one from scratch.
News of the deal sent CIT shares soaring $8.38, or 36.8%, to close at $31.13 on the New York Stock Exchange. The value of the transaction is based on Tyco’s March 12 closing price of $50.70 a share.
Tyco will issue about $6.7 billion in new equity to pay for the acquisition and shareholders responded to news of the dilution by knocking the stock down $3.87, or 7.63%, to a close of $46.83 on the NYSE. Another factor that might have weighed on the stock was the 54% premium Tyco is paying over CIT’s closing price of $22.75 on Monday.
Tyco will pay Japan’s Dai-Ichi Kangyo Bank Ltd. about $2.5 billion in cash, or $35.02 a share, for the bank’s 71 million CIT shares, a stake representing 27% of the company.
Under terms of the deal, Tyco will issue 0.6907 of a share for each share of New York-based CIT, giving public shareholders of the leading independent commercial financing and leasing company the same $35.02 a share.
CIT was the first to offer financing to help people buy Studebaker autos near the turn of the last century.
The company remained independent until 1980 when RCA, the entertainment and consumer-electronics company, bought it. Japan’s Dai-Ichi Kangyo bought its stake in 1989 from the former Manufacturers Hanover Corp.
CIT Chairman, President and Chief Executive Albert Gamper will stay on as CEO and president of CIT and will join Tyco’s board, Kozlowski said.
After completion of the deal, probably in July, CIT expects to shed up to $6 billion in non-core or under-performing assets, Gamper said. He named trucking, manufactured housing and recreational vehicles as businesses likely to go on the block.
Tyco, based in Bermuda but with operational headquarters in Exeter, N.H., has made aggressive use of acquisitions to spur its growth.
The deal is Tyco’s biggest since the 1999 all-stock buy of industrial firm AMP that was worth more than $11 billion.
The company said the acquisition would add about 2 cents to earnings in the current year and 10 cents to 12 cents in the next full fiscal year.
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Tyco Target
Shares of lender CIT Group jumped 36.8% to $31.13 on news that it’s being acquired by Tyco International at a 54% premium to CIT’s close Monday.
CIT Group, weekly closes and latest on the NYSE
Tuesday: $31.13, up $8.38
Source: Bloomberg News
