SRM Global, one of the activist hedge funds that is trying to stop a cut-price sale of Northern Rock, is now seeking to block Bank of America's proposed $4bn (£2bn) rescue of Countrywide Financial, the stricken US mortgage lender.
The Monaco-based fund, run by the former UBS trader Jon Wood, has built a 5.19 per cent stake in Countrywide, the US's biggest lender, and intends to vote against the Bank of America deal. SRM said: "We strongly believe that the terms of the proposed merger with Bank of America are contrary to the interests of the company's shareholders."
SRM wants Countrywide and its advisers to explain to shareholders why they are prepared to sell the company at less than half its book value. Bank of America's offer is worth less than $8 a share whereas Countrywide's book value is more than $20 a share, SRM said.
Bank of America agreed to buy Countrywide last month in a deal that would give it about a quarter of the US mortgage market. Countrywide came close to bankruptcy last year when the short-term debt markets it tapped for its funding froze over. It was shored up with $12bn of new financing from its banks and $2bn of equity investment from Bank of America. "We believe that the company is strong and will rapidly return to profit on a standalone basis," SRM said.
SRM and RAB Capital, another hedge fund, have taken on Northern Rock's board and the Government to push for a better deal for shareholders than that offered by Virgin Money's proposed offer or nationalisation of the bank. They forced Northern Rock to hold an extraordinary shareholder meeting last month and predicted correctly that the Government would back a plan to avoid nationalisation.
By intervening in the Countrywide deal, Mr Wood is taking on Ken Lewis, the chairman of Bank of America, one of the US's toughest deal-makers. Mr Lewis said on Tuesday that "everything is a go" for the takeover and that prospects for Countrywide's business had improved significantly with cuts to US interest rates.Reuse content