The CIT Group and Newcourt marriage is now in question, as it seems CIT wants to cheapen the amount it's willing to pay for the Toronto-based equipment issuer after Newcourt posted below-estimate first quarter earnings. Those lower-than-expected returns, though, hinged on the fact Newcourt had to cut its securitization program going forward by more than 90%.

The two companies aren't saying much outside of confirming they're disagreeing with one another. But both announced last week in a joint press release that they would have to head back to the negotiating table to smooth out their differences.

"As a result of CIT's review of Newcourt's lower-than-expected first quarter earnings, CIT and Newcourt have initiated discussions to reassess Newcourt's earnings expectations," the statement said.

The press release added that Newcourt will be allowed to entertain other suitors as CIT reassesses its offer, prompting analysts to speculate that the deal could be close to collapse.

The key financial point of the transaction was a share swap that would have CIT buy Newcourt for $4.2 billion, an exchange ratio valued at 0.92 CIT shares.

But in order to fall in line with CIT's more conservative financing strategy, which envisioned the combined company funding a maximum of 10% of its business via ABS, Newcourt canceled its newly set $1 billion-per-quarter schedule. Newcourt had funded as much as 40% by issuing asset-backed bonds. Thus earnings fell considerably when the firm postponed its $1.1 billion securitization it had planned for first quarter.

At presstime, Newcourt CFO Daniel Jauernig has been reassigned to run the firm's joint ventures, a new position that accounts for 80% of Newcourt's business. He will be replaced by former Newcourt CFO Borden Rosiak, until CIT's acquisition has closed.

Jauernig had been named by CIT as one of the executives that must stay with the company as a condition of its buyout. - SK

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