No Reason for BofA - Countrywide Merger to Fail

Regardless of the countless reports surfacing casting doubt on this deal, there continues to be no indication, nor reason, for Bank of America (BAC) to consider backing out of its offer for Countrywide Financial (CFC). On the contrary, with CFC encountering so many problems at this time, there will probably be no better time for BAC to make this move, particularly given the cyclical nature of the mortgage market.

This being said, it would not be at all surprising if BAC chose to amend the terms of the deal, as CFC quite literally would have no option but to accept virtually any revision proposed by BAC. However, there has been no indication from BAC that it is considering revising the terms of the deal at this point.

There should be no confusion surrounding this transaction. BAC desires entrance into the mortgage market on a national scale and CFC will provide that, regardless of its current difficulties. From the perspective of BAC, the company is acquiring CFC at its lowest possible point and can only expect to reap long-term benefits as the mortgage market recovers over the next few years.

There is absolutely no expectation by this publication that this deal will not be successfully completed.

Disclosure: We have no positions of any kind, in any security. We are a completely neutral source of research and analysis.

Comments

[jimsep]

Good Luck Thet are both headed south

[amateur]

I do have a position in CFC debt (not shares), so I'd like to share your confidence.
The problem is fear. Basically fear of finding that the losses on CFC portfolio finally exceed its bookvalue + reserves
No hard data point to such a shortfall sofar, but if panic spreads, people -BAC board- may prefer to pass on an opportunity rather than run some additional risk.
Ot the other hand, the deal is clever for BAC, and if they let it go, BAC may have to pay penalties, and some still cleverer private equity fund may finally find the courage to put a few billion to capture the leading mortgages issuer and keep it alive until better times return...

[Brian Harper]

There's a very significant reason why this deal will fail-the owners of CFC are likely to vote it down. Bill Miller's Legg Mason value trust owns 15% and in his 4Q newsletter said the deal, at 30% of book value, is "puzzling". Brandes, a classical deep-value investor, owns 10% and is highly unlikely to support the deal. SRM Global owns 5% and has come out in opposition to the deal. Pzena Investment management, also a deep-value investor, owns 4%. That's 35% of shares. For more:
stocksonclearance.blog.../