A Monaco-based hedge fund, claiming Countrywide Financial Corp. has agreed to sell itself too cheaply, has acquired a 5.19 percent stake in the home lender and hinted that it may agitate for competing bids.
SRM Global Fund made the complaint in a filing with the Securities and Exchange Commission on Jan. 24. It said Countrywide’s merger agreement does not provide “sufficient value to (shareholders)” and that SRM will vote against the merger.
Charlotte, N.C.-based Bank of America agreed earlier this month to pay $7.16 a share, or $4.1 billion, for the Calabasas-based mortgage lender. SRM projected that the deal equates to less than $8 per share, which it said is less than the estimated book value of at least $20 per share.
The hedge fund said it is open to discussing the terms of the deal with Countrywide’s management and board, other company shareholders and even Bank of America.
“We believe that the company is strong and will rapidly return to profit on a standalone basis,” SRM said. “If that is not the case, we would ask management to explain why, and what efforts they made to secure the company’s independent future, or, failing that, to auction the company and induce alternate bids to maximize value for all shareholders.”
SRM continued: “We are also very concerned by the movements in the company’s stock price in the days before the announcement of the merger and intend to ask the Securities and Exchange Commission to investigate.”
Earlier this week, Countrywide announced a loss of $422 million for its fourth quarter as more and more borrowers fell behind on mortgage payments. The loss was much greater than analysts expected.
Separately, the troubled lender is also being investigated by the state of Florida for possible unfair and deceptive business practices related to its home loans.
Florida’s Attorney General Bill McCollum is focusing on the company’s advertising and marketing techniques, and has directed the company to provide documents describing procedures used to determine whether borrowers qualify for subprime loans.
The states of Illinois and California are conducting similar investigations.
Shares in Countrywide were up 3.7 percent to $6.71 in early trading Thursday on the New York Stock Exchange.
