Bluegreen: Can Diamond Finance the Acquisition?

| About: BFC Financial (BFCF)

Dealreporter is out with an interesting piece on Bluegreen (NYSE:BXG) saying Diamond Resorts may find financing an acquisition of Bluegreen, the Florida timeshare company, challenging, according to bankers following the situation. “This is a tough thing to finance,” said an industry banker, adding that his bank would not lend towards a possible deal between the two parties. It is the wrong time to finance a timeshare transaction, commented a second banker who was familiar with the companies involved and had previously been involved in lending for transactions in the industry.

On 21 July, Diamond Resorts signed a non-binding letter of intent [LOI] relating to the acquisition of Bluegreen for USD 15 a share, or approximately USD 500m. The agreement allows for Diamond Resorts to conduct “extensive” diligence until 15 September. In its 18 July letter to Bluegreen, Diamond Resorts said it was “confident that it will be able to raise the financing necessary to consummate the proposed transaction.”

A source close to the situation said Bluegreen had taken reasonable steps to satisfy itself “to some extent” that Diamond Resorts could finance the transaction. The source said Bluegreen had been given some insight into Diamond’s financing plans, but would not go into detail. The source acknowledged that financing market conditions were uncertain at present and decisions on both sides of the table could change during the due diligence process.

Yet, a third banker said the timeshare industry has been a steady performer in tough economic times as people have been unwilling to let go of the equity in their timeshare investments. However, he pointed out vacation ownership and residential sales at Starwood Hotels & Resorts Worldwide (HOT), one of Bluegreen’s major competitors, had dropped 28.4% in 2Q08 when compared to the same period in 2007.

The first banker speculated that because a LOI was signed rather than a definitive agreement, financing was probably the biggest question mark surrounding the deal. “I think that they are struggling on financing,” the banker said. Bluegreen is actually taking on the financing risk by allowing Diamond Resorts access to its books with no breakup fee, this banker said. Diamond Resorts had been given access to conduct diligence because it was a highly motivated buyer, and because of the attractive price being offered, the source close to the situation said.

Notablecalls: I think BXG should move towards the $8-9 level on this tidbit. BXG was a $6.5 stock when the "deal" was announced.

I expect the media to pick up on this one by tomorrow morning as they did with AKS (the next day after Dealreporter broke the story to subscribers).

Disclosure: Author has no position in BXG