Friday January 11, 05:03 PM
UPDATE: Bank of America agrees to acquire Countrywide Financial for $4B in stock
Adds premarket prices, further background, executive quote
NEW YORK (Thomson Financial) - Bank of America Corp. Friday agreed to acquire struggling mortgage lender Countrywide Financial Corp. for roughly $4 billion in stock.
The deal calls for Bank of America to swap .1822 of a share for each share of Countrywide (LSE: CWD.L - news) stock. The transaction values Countrywide shares at roughly $7.16 each, based on Thursday's close. This is roughly a 7.6% discount to the Countrywide's closing price of $7.75 on Thursday.
Shares of Countrywide, based in Calabasas, Calif., were off roughly 16% to $6.50 in premarket action.
Reports of talks between the companies surfaced during Thursday's session, sending Countrywide's stock up more than 50%. Earlier in the week, the stock had sunk to levels unseen in roughly eight years, going as low as $4.43 on Tuesday. A number of factors were at work, including another round of market rumors of bankruptcy that led to a flat company denial on Tuesday and a rise in delinquencies in December operational statistics reported early Wednesday.
Bank of America, based in Charlotte, N.C., anticipates the deal will close in the third quarter and be neutral to earnings in 2008 before adding to earnings in 2009. This view excludes merger and restructuring costs.
B of A sees after-tax cost savings of $670 million from the transaction, a figure that represents 11% of the expense base of the company's mortgage operations.
'We believe this is the right decision for our shareholders, customers and employees,' said Angelo Mozilo, Countrywide's chief executive officer and chairman. 'Bank of America is one of the largest financial institutions in the U.S. and internationally, and we are confident that the combination of Countrywide and Bank of America will create one of the most powerful mortgage franchises in the world.'
The combined company doesn't plan to originate subprime loans, B of A said, adding that it will expand efforts in credit counseling programs as well as 'internal capacity and flexibility' for the modifications of loans once it purchases Countrywide.
On Wednesday, Countrywide said its mortgage loan servicing portfolio was approaching $1.5 trillion, reflecting roughly 9 million loans. As of Dec. 31, the company's banking operations' assets stood at $113 billion. Delinquencies, however, had reached 7.2% for December as a percentage of unpaid principal balances, up from 4.6% for the year-ago period.
B of A shares were off almost 3% to $38.15 in premarket action after closing at $39.30 on Thursday.
Michael Baron
mb/mb/tk1
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