SRM Girds For Fight Over Mortgage Lender Sale

Feb 1 2008 | 12:28pm ET

SRM Global is throwing down the gauntlet in the battle over the U.S.’s largest mortgage lender.

The activist hedge fund said it would vigorously oppose Bank of America’s proposed acquisition of Countrywide Financial Corp. SRM, run by Jon Wood, owns 5.2% of Countrywide.

Under the terms of the deal, BofA would pay $4 billion for Countrywide, which was badly hurt by subprime mortgage defaults, in a stock transaction. That values Countrywide at less than $8 per share; SRM believes the firm’s book value is more like $20 per share. Countrywide shares were selling for $7.33 in midday trading on the New York Stock Exchange.

“We strongly believe that the terms of the proposed merger with Bank of America are contrary to the interests of the company’s shareholders,” an SRM spokesman said. “SRM considers that the proposed terms considerably undervalue the company.”

Countrywide has a huge portfolio of subprime mortgages, and a spike in mortgage defaults left it with a $704 million loss last year. Its marketing practices in the subprime arena have come under criticism, with the Florida attorney general launching an investigation.

In addition to opposing the acquisition, SRM thinks there may be some funny business going on with Countrywide shares. The hedge fund said it plans to ask the U.S. Securities and Exchange Commission to look into price movements in the company’s shares in the days before the merger was announced on Jan. 11.


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