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$400 Million for LEND ?!?



June 06, 2007 – Comments (2)

Disclaimers:  I have no stake in LEND other than CAPS and Forbes' stock picking game.  And, there's plenty I don't know about crunching through a balance sheet.

Lone Star V LP, a private equity firm, agreed to purchase Accredited Home Lender's (LEND) for $400 million, or $15.10 per share.  Interesting transaction given rumors of LEND's financial status. 

Let's dig a little deeper - oops, we can't - the most recent public financial report filed by LEND is for the quarter ended 30 Sep 2006.  Apparently, the only way you can learn about the company's financial status is if you're willing to lend them money (Farallon) or make an offer (Lone Star).  So, if you're an ordinary shareholder or interested party, there's no simple way to do any kind of analysis to see if this is a good offer.

We do know that as of Sep '06, LEND claimed $644 million of net assets.  We also know that since Sep '06, the subprime market has been quite troubled.  We also know that in Mar '07 Farallon Capital Management loaned LEND $230 million at 13% and got 3.3 million warrants for shares with an excercise price of $10.

It's reasonable to assume LEND's balance sheet wasn't in great shape in March if the only way to get financing was under the terms they got from Farallon.  If we assume the loan portfolio value deteriorated between Sep '06 and Jun '07 and factor in the $230 million Lone Star will need to fork over to Farallon to repay the loan, a $400 million buyout price doesn't make much sense.  (No doubt I'm missing something, but as noted above, apparently you need to be a hedge fund or private equity firm to get access to LEND's current financial status.)

Call me a skeptic, but this deal looks a little fishy.  At a minimum, it doesn't seem right that a company that hasn't been able to report its financials to shareholders for over six months is able to provide enough information to a private buyer for them to come up with a bid price.

If you're a financial news junky (and why would you be reading an obscure blog if you're not), keep an eye on this one - this story could get interesting before it's all over. 

2 Comments – Post Your Own

#1) On June 06, 2007 at 2:25 PM, TMFKopp (97.67) wrote:

In the reports that I've seen, it looks like the $400m buyout price is the equity value that Lone Star is paying. It may also pay back Farallon, but it may also leave the loan on LEND's books.

It really does leave a bad taste with me though that, like you said, a private buyer is given access to information that public shareholders do not have. I can't imagine how current shareholders are supposed to evaluate an offer for the company when they're not getting the same information as the buyers.

You've definitely whet my appetite, I'm going to dig in further!


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#2) On June 06, 2007 at 2:59 PM, rd80 (96.79) wrote:

Thanks for the comment.

Interesting kicker, Farallon's warrants effectively give them more than 10% of the outstanding stock.  So, Farallon is in a position to kill the deal if they want. 

I don't know securities regs well enough to know if this would be legal, but Farallon could make a lot of money by shorting LEND aggressively here, then killing the deal and covering on the subsequent price collapse.

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