The Wall Street Journal-20080201-Big Countrywide Shareholder Says Sale Price Is Too Low
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A hedge fund with managers based in Monaco says Countrywide Financial Corp. Chief Executive Angelo Mozilo is selling the company for a pittance.
SRM Global Master Fund LP, registered in the Cayman Islands, disclosed yesterday that it holds a 5.2% stake in Countrywide, valued at about $209 million. SRM's filing with the U.S. Securities and Exchange Commission argued that terms of Bank of America Corp.'s planned acquisition "considerably undervalue" Countrywide, the largest U.S. mortgage lender in terms of loan volume.
Based on Bank of America's share price yesterday, the planned share swap is valued at about $8 per Countrywide share, or $4.6 billion. Analysts put the book value of Countrywide shares, based on the company's Dec. 31 balance sheet, at about $22 a share. However, many believe that value will fall as the company writes down loans and securities and provides for future default losses and legal costs.
Countrywide, which earlier this week reported a fourth-quarter loss of $421.9 million, could "rapidly return to profit on a stand-alone basis," SRM said. It is seeking information from the company on what efforts it made to remain independent or "induce alternate bids to maximize value for all shareholders."
Countrywide officials declined to comment. Bank of America said it believes the price is "fair for both companies."
Gary Gordon, an analyst at Portales Partners in New York who has followed Countrywide since the early 1990s, said Bank of America's offer looks "extremely cheap" based on Countrywide's latest balance sheet and the value of such assets as the loan-origination operation, loan-servicing unit and insurance arm.
Countrywide has been able to increase deposits at its savings bank and modestly reduce its reliance on borrowings from the Federal Home Loan Bank of Atlanta. Lenders like Countrywide should benefit from the Federal Reserve's recent interest-rate cuts and congressional plans to let mortgage investors Fannie Mae and Freddie Mac purchase or guarantee larger home loans.
Even so, Mr. Gordon said he would be surprised if another bidder for Countrywide surfaces in the near term. In addition, the company's board faced a host of unknowns, including how much further U.S. home prices would fall and the ultimate costs of lawsuits and investigations by regulatory authorities. The board's decision to accept the Bank of America offer was "a judgment call," Mr. Gordon said. People close to those deliberations say the board was swayed partly by the unpredictable regulatory and legal risks.
Countrywide's shares at times in recent weeks have traded at discounts of more than 20% to the deal price amid speculation that the Bank of America acquisition could fall through or be renegotiated. That discount narrowed to around 13% yesterday. Countrywide shares, which have dropped more than 80% from a year ago, were at $6.96, up 7.6% on the day, at 4 p.m. yesterday in New York Stock Exchange composite trading.
Separately, Bank of America said it plans to name David Sambol, Countrywide's president and chief operating officer, as head of the combined consumer-mortgage business of the two companies. Mr. Sambol, 48 years old, is to report to Bruce Hammonds, who is assuming the new position of global consumer-credit executive, responsible for all consumer-credit products. Mr. Hammonds, the former chief executive of credit-card giant MBNA, has been lauded for his handling of the combined credit-card business in the wake of Bank of America's $35 billion acquisition of MBNA two years ago.
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Valerie Bauerlein contributed to this article.
