BAC/CFC Update

I wrote back in January to give my opinion on the Bank of America/Countrywide buyout. Actually, I didn't give much of an opinion but rather my analysis and conclusion that the deal may not go through.

Bank of America offered BAC stock to shareholders of CFC. So its a no cash deal (partly because BofA has already invested over $2b in cash over the last year). Since stock prices are always changing I thought I'd revisit the deal, update the value BofA is placing on Countrywide, and see if the market has changed it's opinion on the transaction.

Last month I noted a $1.2b gap between the markets value of CFC and BofA's offer. Since my write up BAC is up 15.4% and CFC is up 26.8%. At 0.1822 shares of BAC for every 1 share of CFC, BofA is now valuing Countrywide at $4.5b (market close 2-22-08).

Despite the great increase in CFC stock price over the last month and a half, the market is still valuing CFC $500m less than BofA is ($4b vs $4.5b). So no longer the 43% premium I wrote about last month but still 12.5% to gain if you think the deal will go through (and want to own BofA stock at $42.60).

So BofA...what has Countrywide done in the last 6 weeks to increase their value by $400m? Certainly it wasn't the $422m loss last quarter or the $0.15 dividend on common stock and $1,812.50 dividend on preferred stock (not a mistype, it really is $1,812.50 a share). Come on BofA, what is it?

And you Countrywide/BofA fan boys: I expect you guys to be buying up CFC for that 12.5% premium.

-Jeff the Great