The Cit Group
9 Pages Posted: 21 Oct 2008
This case and its companion "International American Bank" (UVA-QA-0531) can be used as part of a module on the creation of mutual value. If the negotiators go beyond an arms-length approach to their relationship, they can create considerable value by relieving constraints and including additional issues. The cases can be used to illustrate the value of strategic alliances.
THE CIT GROUP
“Thanks again,” said Jim Daley, finishing his second conversation of the day with Ethan Langhorne at Fitzhugh, Hume, and Rose, a regional investment bank. Earlier in the day, Langhorne had suggested that International American Bank's (IAB's) Small Ticket division might be in the market for a small leasing company. The rumor was that Merriweather Financial, a lender for smaller ticket assets, was the likely target. Langhorne knew of Daley's interest in selling a portion of his smaller ticket loan assets and had suggested that a deal might be in the offing.
Daley was acquainted with Kelly Ebersol, IAB's senior vice president (Sales and Capital Markets) from various industry gatherings, and had decided to give her a call. He reasoned that Ebersol was probably looking for a pool of assets to help expand the asset base of one of her divisions, and hoped he could convince her to buy his pool instead of Merriweather Financial. He knew that small ticket firms commanded an unreasonable premium in the current marketplace and hoped to use this knowledge to his advantage as he made his pitch. In fact, Ebersol had been very receptive to the possibility of purchase, although not for the full pool that he had offered at $ 151,968,000, but for one-third of it. It seemed likely that they could make a deal, and all that remained was to hammer out the details.
The Equipment Leasing Industry
The U.S. equipment leasing industry was enormous and diverse. In 1997 over 30% of the $ 566.2 billion in capital expenditures for productive assets was done through leasing. Assets ranging from airplanes valued in the hundreds of millions of dollars to industrial machinery valued in the low thousands made up the broad spectrum of leased items. Over 2,000 companies provided leasing services to American businesses, including banks, industrial finance companies, and independent companies. Profitability for the leasing industry was stable with an average return on assets of 1.5% and return on equity of 13.9%. In the world economy, the United States was the clear leader in both the supply of funds for leases and the demand for leasing funds, with a 40% share of the global leasing market.
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Keywords: negotiation, creating value
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