More states have filed charges against Countrywide (NYSE: CFC) for aggressive marketing and giving loans which were highly risky. Washington and California have joined Illinois in the actions.
Up until now, Bank of America (NYSE:BAC), which is buying Countrywide, has been sticking to its story that it will close on its purchase of the mortgages company. The media has written a million times that the big money center bank might pull out of the deal. That actually became a bit more likely with the new states' actions.
According toThe Wall Street Journal, Kurt Eggert, a law professor at the School of Law at Chapman University said, "Countrywide could be required to give back its profit on all those loans and conceivably give back houses on which it has foreclosed." Since that number could be well into the billions of dollars, the potential damages are rising fast.
Countrywide could spend tens of millions of dollars on legal fees and countless hours in court over the next several years. That has become much clearer in the last few days.
BAC would be better off to let CFC go out of business and just buy its assets. Maybe the bank never intended to close the deal. Maybe that was its plan all along.
Douglas A. McIntyre is an editor at 247wallst.com.
Staples, Inc. (Nasdaq: SPLS) first announced on February 19 that it intended to make a public offer for all the outstanding ordinary shares and ADR's of Corporate Express N.V. (NYSE: CXP) for with a buyout price of 7.25 Euro's per share per ordinary share and ADS ($11.44 in today's terms of 1 Euro=$0.6334). Staples has confirmed that preparations are well under way for the Offer. Staples will also make a public offer for the depositary receipts of preference shares A and the convertible bonds.
This offer appears to be a premium of approximately 67 percent to the Corporate Express closing share price on Feb. 4, 2008, which is listed as the day before rumors of the deal began circulating; and approximately 33 percent above the day before the announcement was made. If you look here, what is obvious as a heart attack is that Staples is going hostile in the buyout offer based on CEO Ron Sargent comments:
"While we continue to be disappointed that Corporate Express' Executive and Supervisory Boards have not entered into a negotiation with us about the transaction, we remain very enthusiastic about a combination between the two companies....." After that, it doesn't really matter what is said. That's a hostile bid.
The company will make regulatory submissions and for competitive regulatory approval before May 13, 2008. Staples noted that its financing plans have progressed: the previously announced bridge loan commitment from Lehman Brothers Inc. (NYSE: LEH) is now equally shared by Bank of America (NYSE: BAC) and by HSBC Holdings (NYSE: HBC). After the final credit documentation, this financing combined with existing cash and liquidity will be sufficient for Staples to acquire Corporate Express.
After looking over the situation, Corporate Express has a market cap right at $2 billion today based on a $10.71 ADR price. As far as if this is the last offer, that isn't stated but there's no reason for Staples to compete against its own offer from the start. As of the last available data, Staples has a $15.5 billion market cap and over $1.2 Billion in cash and liquidity. But it also has $3.3 billion in debt. Its $9 billion assets, even with a conservative value of more than $6 billion after backing out goodwill, intangibles, and the other fluff. The Staples balance sheet is sold enough to pull this off.
Sometimes the lighter side of Wall Street leads right into hedge funds and private equity news, and sometimes it leads to crazy antics of celebrities or politicians. It appears that Fortress Investment Group LLC (NYSE: FIG) has entered into an agreement with none other than Michael Jackson to allow him to keep the giant Neverland in California.
You can see the AOL link here to the full AP story, and in addition we did some digging back in time for some background. Low and behold, this led to a triangle with Bank of America (NYSE: BAC) and Sony Corp. (NYSE: SNE). It's also not the first hurrah between Michael Jackson and Fortress.
As odd as it seems, you know the guys at Fortress think there's money to be made here.
Hedge fund SRM Global has boosted its stake in beleaguered lender Countrywide Financial (NYSE: CFC) to 5.48%, a position valued at about $225 million.
In a letter filed as an attachment to an amended 13-D, SRM wrote that,"We believe that the merger transaction with Bank of America (NYSE: BAC) is not in the best interests of its shareholders. We are extremely concerned that the value to be received by shareholders based upon the proposed terms of the merger represents less than half of the book value of the Company as of the end of the fourth quarter 2007 . . ."
SRM may have a point but it doesn't appear that other firms were beating down Countrywide's doors looking to buy the company -- and given that Countrywide is the poster child of subprime dross, it was hardly an unknown entity.
But then again, given that the company's board of directors has done a heinously bad job of overseeing the company and reigning in executive compensation, it wouldn't be a big surprise if they managed to shaft shareholders with the sale of the company too.
Bill Miller has also complained about the deal. In any case, shares of Countrywide aren't trading like Wall Street expects anything to come of SRM's or Miller's complaints.
CEO Angelo Mozilo could receive $10 million in stock awards in April that will vest when Countrywide changes control. Mozilo gave up $37.5 million in severance in response to the extreme heat he has taken over the subprime-mortgage breakdown.
COO David Sambol will be entitled to a $1.9 million retention package and $2.6 restricted stock award. Sambol may oversee the consumer mortgage operation once the merger is completed. If his employment is terminated following the merger, he could receive $15 cash severance payment.
This merger is also facing obstacles including 5 lawsuits and a definite "NO" vote from a 5.2% stake owner, hedge fund SRM Global Fund. Stay tuned, this one is far from done being over.
Posted Jan 30th 2008 5:35AM by Jon Ogg Filed under: Deals
Maybe the U.S. is heading into a slowdown, and maybe private equity and traditional M&A has been slowing down in recent months. But there are many deals still pending, and regardless of the economy the temptation for consolidation and acquisitions is just going to be too great for nothing new to occur in this space. Below are some snippets from many deals going on in recent IPO's, M&A, private equity, and more.
Alliance Data Systems (NYSE: ADS) is an interesting situation, despite the private equity acquisition of it all but formally blowing up. I am not convinced this one is dead entirely because of lawsuits and break-up or termination fees likely, but it's hard to imagine the original terms being anything realistic now.
A piece in today's Wall Street Journalsuggests [subscription required] that Countrywide Financial (NYSE: CFC) was driven into the arms of Bank of America (NYSE: BAC) also by fears of a regulatory crackdown.
According to the Journal, "Though the big home-mortgage lender faced large and unpredictable losses on defaults, the more immediate danger was pressure from regulators, politicians and rating firms, these people say."
The acquisition of Countrywide by the much larger Bank of America will ease the company's liquidity problems, making it less reliant on the Federal Home Loan Banks for funding. According to the Journal's source, the company was near the cap for funding, and a scandal surrounding the company might have jeopardized its ability to secure additional cash.
The company had been paying far-above market interest rates on CDs and savings to attract further cash -- a sign of its desperation for money.
Bank of America can easily solve the mortgage-home lender's liquidity problems because of its sheer size. But given the regulatory heat surrounding Countrywide -- shareholder lawsuits, attorneys general in Florida, California, and Illinois investigating, and an SEC investigation of its accounting -- Bank of America may have inherited some pretty significant liabilities.
Of course, BofA will have attempted to figure out the extent of the possible damage before it agrees to the deal, but multiple federal investigations are a pretty serious wild card.
As far as anyone knows, Bank of America (NYSE: BAC) is buying Countrywide Financial (NYSE: CFC). The CFC stock price would indicate that the market has its doubts about whether the deal will close.
The groups really sweating the deal are the Countrywide bond-holders.
Basically, the robustly profitable (those overdraft fees have to go somewhere!) BofA will be able to use Countrywide's losses to offset its own income. One tax expert told Sloan that the acquisition could save the company half a billion dollars in taxes over the next five years, and considerably more after that.
So let me get this straight: Countrywide CEO Angelo Mozilo is getting a $100 million plus severance package for dumping stock while running his company into the ground and then tossing it to Bank of America at a tiny fraction of its previous high -- and part of the deal is essentially being financed through tax savings for Bank of America.
Given that taxpayers, you and me, will essentially be paying for this in the form of lower taxes for Bank of America (shifting the tax burden to other people), I think I'm entitled to at least as much of a bonus as Mr. Mozilo. But I'm not greedy, so I'll be happy to settle for an even $50 million.
If you're a Countrywide Financial executive and you have my check ready, leave a comment and I'll be in touch.
You would think that having sold millions of shares at inflated prices would have been enough for Angelo Mozilo, who is now dumping Countrywide Financial (NYSE: CFC) on Bank of America (NYSE: BAC) for less than a fifth of what the company traded at earlier this year.
The company has taken huge writedowns on ill-advised subprime loans, even as Mozilo sold about $140 million worth of stock during late 2006 and 2007. But according to the Los Angeles Times, "If he engineers a sale of battered Countrywide Financial to Bank of America, Countrywide CEO Angelo Mozilo stands to walk away with a severance package worth more than $110 million."
The Times adds that Mozilo and wife will get health benefits for life, three years of life and financial planning help, and "tax gross-up payments" to compensate for any penalties he has to pay on a package that the IRS will likely consider grossly excessive.
This is an absolute parody of corporate governance. It's hard to imagine anyone less entitled to any severance than Mr. Mozilo. The irony is that by selling to Bank of America at a depressed price, Mozilo reaps a windfall far larger than he likely could have earned through continued employment with the company. And he won't have to work any more!
On the bright side, he'll have more time to work on that wonderful tan, though it appears that he's already been spending time doing that as the company has slid to the brink of bankruptcy
The New York Times reports that Bank of America (NYSE: BAC) will buy Countrywide Financial (NYSE: CFC) for $4 billion in stock -- or $7.16 a share -- $500 million below CFC's current market value of $7.75 a share, or $4.5 billion. Although this outcome is better than a bankruptcy filing or a government bailout, Bank of America may be letting its ego get in the way of sound business strategy.
Yesterday I told TheStreet.com that I thought Bank of America -- which in August bought 16% of Countrywide by buying $2 billion in preferred shares yielding 7.25% with an option to buy 111 million shares of its stock at $18 -- was doubling down on a bad bet. Since then, Countrywide's stock has fallen 63% from $21 to $7.75 -- wiping out $1.3 billion worth of that 16% stake's value. To me this proves that Countrywide's CEO Angelo Mozillo was wrong when he said last March that the subprime mess would be "great for Countrywide because at the end of the day, all of the irrational competitors will be gone."
While this deal will end Countrywide's irrational existence, Bank of America is likely to survive. For Bank of America shareholders, the question is whether the value of Countrywide's assets -- a $1.4 trillion loan servicing portfolio, a bank, an insurance company, a subsidiary that provides borrowers with loan closing services like appraisals and flood certifications; and a broker-dealer that trades securities -- exceed the cost of its liabilities.
Bank of America (NYSE: BAC) announced a deal to buy Countrywide Financial (NYSE: CFC) for about $4 billion today. According to news reports, the boards of directors have been in talks for about a month. Countrywide's market value dropped from $27 billion a year ago to about $4.5 billion as of yesterday on rumors that Countrywide was close to bankruptcy.
Bloomberg reports that Bank of America was looking at a potential loss of $1.3 billion from its stake in Countrywide and instead decided to buy Countrywide at fire sale prices. Bank of America gave Countrywide a $2 billion cash infusion about five months ago in exchange for preferred stock with a yield of 7.25% that was convertible to common shares at $18. With Countrywide's stock closing at $7.75 yesterday and rumors of bankruptcy, Bank of America's cash infusion was looking like a really bad deal. Eric Schopf, fund manager at Hardesty Capital Management, told Bloomberg, "I hope Bank of America isn't throwing good money after bad. They struck a deal that wasn't very attractive. Hopefully they can get it right the second time around."
What does this deal do for Bank of America? The bank gets control over the largest mortgage lender with a lucrative loan servicing business with $1.4 trillion worth of mortgage loans -- the largest loan servicing portfolio as well -- for just about $4 billion in stock. Not bad when you remember that BOA paid $48 billion for FleetBoston Financial in 2004 and $35 billion for MBNA in 2006. In addition, BOA gets instant access to Countrywide's top-notch infrastructure and technology.
E*Trade Financial Corporation (NASDAQ: ETFC), the online brokerage, has lost investors tons of money. The company is shedding non-core divisions and getting back to basics. E*Trade usually is involved in rumors of either joining or buying TD Ameritrade Holding Corporation Corp. (NASDAQ: AMTD), and I think that we are going to see some movement in terms of selling the online brokerage firm. At just around $4 a share, these stocks are beginning to look interesting again.
Washington Mutual, Inc. (NYSE: WM) has seen its stock drop by some 75% over the last year. The stock is trading with a PE of a bit more the four, and has a dividend yield over 17%. Now I would guess that most analysts believe the dividend is going to be cut. I wouldn't be at all surprised to see a foreign bank that wants to get a big foothold in the US to make a play for the bank.
With stocks so low, look for cash rich companies to be on the prowl for interesting financial companies.
Aaron Katsman is the lead Portfolio Manager and Managing Director of America Israel Investment Associates, LLC. and Senior Editor of IsraelNewsletter.com. DISCLOSURE: Writer's fund has a position and owns stock in ETFC and is long the stock. He has no positions in any other stock mentioned as of 1/10/08.
BusinessWeek reports that The Bear Stearns Companies (NYSE: BSC), which reported earnings today, is behind $10 billion worth of Collateralized Debt Obligations (CDOs) at Citigroup Inc. (NYSE: C) and Bank of America (NYSE: BAC). It all comes down to yet another new word to add to your financial vocabulary -- Klio Funding -- a brand of CDO that enabled Bear to sell to the $2 trillion money market fund industry.
What is Klio Funding and how did it cause all this damage? Klio Funding is "an entity" that sells Commercial Paper (CP) -- short-term loans -- and uses it to buy higher-yielding long term investments. Since Citigroup had agreed to refund investors' initial stakes plus interest -- through liquidity puts -- money market funds that bought Klios thought they would get higher yields at low risk.
Meanwhile, Ralph Cioffi -- who headed up three Bear hedge funds which eventually folded -- used money raised from the Klios to buy CDOs and to lock in year-long financing for his hedge funds. This is significant because hedge funds typically can only borrow money for weeks at a time due to their risk. Cioffi's CDOs were popular, raising $100 billion.
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More states have filed charges against Countrywide (NYSE: CFC) for aggressive marketing and giving loans which were highly risky. Washington and California have joined Illinois in the actions.
Countrywide Financial
