Filed under: Deals, Bank of America (BAC), Countrywide Financial (CFC)
SRM Capital Management head Jonathan Wood has been slamming Bank of America (NYSE: BAC)’s deal to acquire Countrywide Financial (NYSE: CFC) for more than a month now, but with shares of the target company still trading at almost a $2 discount to the buyout price, investors appear too skeptical that Wood will make any progress. Analysts at Friedman Billings Ramsey and Stifel Nicolaus have recommended [subscription required] that if there’s any revision in the deal’s price, it would likely be a downward move.
The crux of Mr. Wood’s argument seems to be that Bank of America “should pay a price closer to Countrywide’s book value, currently $22 a share,” according to the Wall Street Journal.
The problem is that Countrywide’s book value is overstated and will have to weather future writedowns. It isn’t like Countrywide is sitting on a huge cash pile. In addition, the company has tons of future liabilities: shareholder lawsuits, investigations, even exceptionally rare lawsuits filed by bankruptcy trustees accusing the company of “sustained bad faith.”
Countrywide’s struggles have been front-page news for over a year — Bank of America hardly snuck in and negotiated a back-room with an unknown entity. Wood can complain all he wants but I don’t see anyone stepping forward with a better offer.
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