Rumors Swirl Around Countrywide Again

8 May

Countrywide Financial (CFC) shares are up over 7% in today’s trading on no apparent news. Is this just speculation or another case of trading ahead of an impending deal announcement? Stories of the latter have been in the financial press in recent days regarding suspicious trading activity surrounding the take-private deal for TXU (TXU) and Rupert Murdoch’s recent buyout offer for Dow Jones (DJ). In fact, a complaint has been filed against a couple that allegedly bought Dow Jones shares just two weeks ahead of the offer announcement.

So is Countrywide a viable takeover target? I’ve argued shares looked cheap in the mid-30s but with the stock advancing nearly 20% since then, the margin of safety in purchase price does not appear to be as great. Yet in the hands of the right buyer Countrywide would be worth quite a bit more than its recent quotation of $41 and change. And if it doesn’t get purchased, the company should continue to grow shareholder value – gaining market share in both origination and in servicing (both businesses with scale advantages), as the mortgage market “rationalizes.”

Countrywide is no stranger to buyout speculation. Shares ran up in a similar manner at the end of January on takeover rumors that never materialized. We’ll just have to wait and see if there is any substance to the move this time.

Full disclosure: Long CFC shares.

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