Failed PHH Deal Hurt Insiders and Shareholders

Top executives at PHH (PHH) personally felt the stress in debt markets when the top provider of mortgages and services for managing vehicle fleets said Tuesday it ended a $1.8 billion agreement to be bought by General Electric Capital Corp. (GE) and The Blackstone Group (BX) because the private equity company could not line up financing (by December 31, as stipulated by the agreement).

In the event of a Change in Control, CEO Terence W. Edwards and President George J. Kilroy stood to receive potential payments of $2.68 million and $2.06 million (without termination), respectively; or, $3.79 million and $2.52 million, respectively (change of control with termination).

John Coumarianos, an analyst with Morningstar, said he thinks even without a takeover the fair value estimate of PHH remains unchanged—based on the intrinsic value of PHH's business, the stock should be worth $29 a share.

PHH shares touched a 52-week high of $31.52 in July 2007.

The collapse of the deal is of little comfort to Named Executive Officers at PHH, too, because their outstanding equity awards at Fiscal Year-end for 2006 were underwater, with the bulk of option exercise prices between $17.43 and $24.99 a share.

A rare example of where the interest of insiders is truly aligned with those of other shareholders.

Author David J. Phillips does not hold a financial interest in any of the stocks mentioned in this column. The 10Q Detective has a Full Disclosure Policy.