MGIC Investment Corp., a mortgage insurance provider, will acquire Radian Group Inc., a subprime mortgage insurance provider, in a $4.9 billion stock swap. Both CEO's will take turns running the consolidated MGIC Radian Financial Group Inc. with a market cap of $10b, nearly $15b in total assets, more than $290b of active primary mortgage insurance and a guaranty portfolio of $104b. Merged, they'll save $128 million in pre-tax costs -- but also incur $125-150m in restructuring costs. Radian's shareholders get 0.9658 share of MGIC stock for each share, a premium of just 4 cents ($60.84 over Monday's $60.78 close), with a small (0.25%) dividend for both companies' investors. Yet despite MGIC's concern over Radian's "Alt-A" risky mortgage insurance, the "tax-free reorganization"/merger was unanimously approved by both boards. Investors agreed, sending Radian shares up 9.3% to $66.47, and MGIC shares up 11% to $69.70 on Tuesday. Increasingly facing lower premiums and high default rates from the U.S. housing slump, the mortgage insurers merger could signal further consolidation in the sector and possibly a bottoming out of low stock valuations from several years of lower interest rates.
Sources: Press release, Bloomberg, MarketWatch, TheStreet.com, Wall Street Journal, MSNBC,
Commentary: MGIC Investment: Living on Borrowed Time -- Barron's • MGIC Investment's Book Value Growth Better Than I Predicted • MGIC Investment Corp.: An Undervalued, Minimal Risk Long Pick
Stocks to watch: MGIC Investment Corp. (NYSE:MTG), Radian Group Inc. (NYSE:RDN). Competitors: PMI Group Inc. (PMI), Genworth Financial Inc (NYSE:GNW), Triad Guaranty Inc. (OTC:TGIC), Assured Guaranty Ltd. (NYSE:AGO), Bancinsurance Corp. (BCIS)
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