Buffett reportedly in running for Tyco's CIT
by David Weidner
Posted 06:52 PM EST, Feb-14-2002
A damaged, but respected company is trading at a discount, and a buyer in the shadows is picking up its debt at a discount. Is Warren Buffett readying a play for Tyco International Ltd.'s financial services arm, CIT Group?
Buffett, his Omaha-based Berkshire Hathaway Inc. and Tyco aren't saying. But on Feb. 14, debt traders said they believed Buffett was buying debt, a sign he could be readying to build on his acquisition of Finova Group Inc. last year.
Moreover, financial services investment bankers and risk arbitrageurs say that Berkshire Hathaway has almost certainly been approached about buying the Tyco unit, though Berkshire's name has not surfaced up to now on the list of potential bidders.
CIT would appear to fit Buffett's investment criteria. It is a nearly 100-year-old company with a good brand name and strong balance sheet. Many investors believe CIT has suffered for its relationship with Tyco and its accounting scandal.
Tyco executives may have also paved the way for Buffett — or another buyer — to enter the deal by offering Wednesday to keep a minority interest in CIT Group. In his last deal for a finance company, Buffett split the risk of buying Finova by forming a partnership with New York-based insurer Leucadia National Corp.
Separately, Tyco's financial wing said Thursday it had officially changed its name back to CIT Group Inc. and modified the contracts of its public unsecured debt indentures to prohibit loans or dividend payments to its parent, Tyco International.
Bankers familiar with the talks declined to say if Berkshire is at the table, and a spokeswoman for Berkshire declined comment. Buffett has historically bought debt to gain a measure of control in companies in bankruptcy.
Buffett would be among the first to get a pitch book, bankers said Thursday .
"It makes perfect sense," said one veteran financial services investment banker not working on the deal. "It's exactly his kind of company ... He would have to be on the short list of candidates."
If so, the sale of CIT could read like a replay of last year's nasty takeover battle last year for control of Finova, a Scottsdale, Ariz.-based specialty finance company not unlike CIT. In that fight, Buffett beat out GE Capital Corp. and Goldman Sachs Group Inc.
GE Capital has been viewed as the front-runner to buy all or part of CIT, which is valued by analysts at between $5 billion and $8 billion. A Goldman Sachs team led by M&A chief Jack Levy has been hired by Tyco as one of its advisers in a potential sale.
"They're beat up, and they're cheap," said a fund manager. "[Buffett] likes things that are beat up and cheap. We know he understands the business." |
