Small doubts remain on BofA, Countrywide deal; Bright Horizons for Bain; Terex takes in ASV

By Evan Weinberger

New York, Jan. 14 - The Bank of America Corp. takeover of Countrywide Financial Corp. announced Friday appears to remain on solid ground, but market watchers have told Prospect News that they have seen some investors behaving as if they are not quite sure.

One area where they have seen this is in Countrywide's convertible bonds, which, according to a market watcher, "Yield to put are trading a lot wider than if they were an implied BofA credit."

Both of Countrywide's convertibles mature in 2035. Countrywide's Libor minus 350 basis point series A convertible senior debentures have a put in October of this year. The company's Libor minus 225 bps series B convertible senior debentures have their first put in May 2009.

A trader said that if investors were completely sold on the deal, he would have expected to see Countrywide's two convertibles trading closer to par since the deal was announced.

Last week, both convertibles were trading in the low- to mid-60s. Since then, the A's have moved up to above 90 while the B's have moved back into the 80s.

Charlotte, N.C.-based Bank of America said on Friday that it will acquire Calabasas, Calif.-based Countrywide for around $4 billion. Countrywide, the largest mortgage lender in the United States, has been hammered in the subprime mortgage meltdown, with its stock losing 80% of its value since this time last year.

Bank of America pumped $2 billion into Countrywide in August to attempt to boost the struggling lender. Since then, Countrywide stock has tumbled more than 70%.

An analyst said Friday that he saw a risk-arb spread of 9% on the deal going through.

"They're doing this deal," the first market watcher said. "The thought to me, if they end up backing away from this, it's a huge disaster for the market."

With Bank of America claiming to have done its due diligence on the deal, he said, backing away from the deal would mean a significant collapse in Countrywide's finances.

The trader said a collapse of the deal "would be a huge psychological blow to the market." He added that he expects the deal to go through.

Countrywide stock (NYSE: CFC) fell 24 cents, or 3.79%, to close at $6.09.

Bank of America stock (NYSE: BAC) moved up 72 cents, or 1.87%, for a $39.22 close.

IBM lifts stocks

International Business Machines Corp. put out its preliminary fourth quarter earnings report Monday.

IBM said it expects to post a 24% jump in earnings over the fourth quarter of 2006, beating expectations.

That news was the engine for a strong day on Wall Street.

The Dow Jones Industrial Average jumped 171.85 points, or 1.36%, to 12,778.15.

The Nasdaq surged 38.36 points, or 1.57%, to 2,478.30.

The Standard & Poor's 500 closed at 1,416.25, a gain of 15.23 points, or 1.09%, on the day.

Bain has newer, brighter Horizons

It wasn't a big deal, but it was a deal in the leveraged buyout world Monday. Bain Capital Partners LLC snapped up Bright Horizons Family Solutions, Inc. for about $1.3 billion.

Shareholders in the Watertown, Mass.-based employee-sponsored children's health and day care provider will receive $48.25 for each share. That represents a 47% premium over the stock's closing price of $32.79 on Friday.

"We are excited to team up with Bain Capital, who enthusiastically supports our mission to provide high-quality care, education, and work/life solutions to the children, families, and clients we serve," David Lissy, Bright Horizons' CEO, said in a statement announcing the deal Monday.

According to the statement, committed financing for the transaction has already been provided. Along with equity provided by funds affiliated with Bain, two units of Goldman Sachs have agreed to provide debt financing.

There is no financing condition to the deal, so Bain will not be able to claim problems with financing to break off the deal.

The acquisition is expected to close in the second quarter of this year. Bright Horizons has 60 days to find a better deal.

Bright Horizons stock (Nasdaq: BFAM) shot up to $44.86, a gain of $12.07, or 36.81%.

Terex makes tracks with ASV deal

Westport, Conn.-based industrial equipment maker Terex Corp. agreed to a merger with ASV Inc. on Monday.

The deal is valued at about $488 million, or around $18 for each diluted share of ASV common stock.

ASV is a Grand Rapids, Minn.-based maker of rubber-tracked construction equipment. For those not in that business, that means treaded tractors and bulldozers.

One of ASV's largest customers and shareholders is Caterpillar Inc., the construction and mining equipment giant, which has given its blessing to the deal. Caterpillar owns 23.5% of ASV stock.

That blessing is one reason that Terex expects its acquisition of ASV to lead to a big jump in sales.

"The ASV acquisition is an excellent strategic and cultural fit and provides a great addition to our product offerings as Terex continues to grow as a global construction equipment manufacturer," Ronald M. DeFeo, Terex chairman and CEO, said in a statement announcing the deal. "From a financial perspective, we expect that ASV will add approximately $220-250 million in sales on a 2008 full-year basis and we are confident that this acquisition will enhance future earnings growth potential for Terex."

Terex said it expects the deal to close by the end of the first quarter of 2008.

ASV stock (Nasdaq: ASVI) surged $5.50, or 44.75%, for a close of $17.79.

Terex stock rose $3.81, or 7.20%, to $56.74.

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