By Maxwell Murphy A DOW JONES NEWSWIRES COLUMN
NEW YORK (Dow Jones)–Given a choice between nothing and 2.5% of CIT Group Inc. (CIT), CIT stockholders need bondholders to swap their existing notes for new ones and most of CIT’s equity.
Problem is, bondholder support is no sure thing, and even if the CIT plan works, investors buying CIT stock at today’s levels are probably vastly overpaying. And if CIT falters even after a successful recapitalization, CIT shareholders will find that 2.5% of nothing is nonetheless nothing.
CIT shares traded higher Friday on the news, but even at nearly unchanged Monday levels around $1.15 a share, the implied valuation of CIT is over $18 billion, over 50% more than its mid-2007, all-time high market capitalization. Even if CIT would emerge from the proposed debt exchange healthy as ever – and nobody’s saying anything like that – a more appropriate valuation would be around 75 cents apiece. Given CIT’s troubles will be far from over even if the exchange succeeds, the stock’s probably fetching double or more what it should in even the cheeriest scenario.