Accredited Home Lenders Holding Co., the San Diego subprime lender that’s been haggling with its buyer in recent months, agreed to a 22 percent discount on the share price last week, apparently saving the deal.
The disclosure of a legal settlement Sept. 18 set the new price to be paid by Lone Star Fund for the company at $11.75, down $3.35 from the original price agreed to June 4 when the deal was struck.
As part of the settlement, the parties agreed to drop dueling lawsuits set for a trial in the Delaware Chancery Court scheduled to begin later this week.
“This new agreement fairly settles our dispute and will expedite the completion of the merger with Lone Star,” said Jim Konrath, chairman and chief executive of Accredited. In August, Lone Star attempted to back out of its definitive agreement to buy Accredited as the credit markets continued to roil, making it difficult to originate and sell subprime mortgage loans.
The Dallas-based private equity fund said because of Accredited’s “drastic deterioration” in its financial condition, it reduced its tender offer to $8.50 per share, or 44 percent below the original offer.
In meeting Lone Star halfway and accepting a 22 percent haircut on the deal, Accredited will be sold for an aggregate price of $311 million, down from the $400 million in the original agreement.
But something is better than nothing, and most analysts believed without a buyer, Accredited was doomed to file for bankruptcy.
Since the subprime debacle began in the first quarter, 50 or so mortgage lenders have filed for bankruptcy, gone out of business or been sold, including Irvine’s New Century Financial Corp., the nation’s second largest originator of subprime loans. Such mortgages are made to borrowers with tainted credit histories and carry greater risk of default.
Lone Star, an equity firm that manages more than $13 billion and whose clients are corporate and public pension funds, university endowments and family trusts, also agreed to provide Accredited with $49 million in new financing, $34 million of which will be used to pay off debt to a single creditor, leaving $15 million in cash. Accredited said in a securities filing last month that its total liquidity, or cash and cash equivalents, was $240 million.
This month, Accredited halted all new mortgage lending operations, closed all its retail offices, and cut back on its wholesale lending operations. In the process, it reduced its staff by 1,600 people, bringing its total to about 1,000 as of Sept. 14, the company said in its Sept. 18 filing.
As of Dec. 31, Accredited had 4,200 employees, and as of June 30, its staff numbered 2,600.
At the close of trading Sept. 19, Accredited shares were at $11.56. The stock’s 52-week range is between $3.77 and $37.15 a share.
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Leap Rejects Buyout Offer:
Leap Wireless International Inc., the San Diego parent of Cricket Communications, a flat-rate wireless carrier, said Sept. 16 that an unsolicited offer to buy the company by MetroPCS Wireless earlier this month was insufficient.
MetroPCS, another flat-rate wireless carrier based in Dallas, offered 2.75 shares of its stock Sept. 4 for each share of Leap, a price at that time that translated to $78 per share, or $5.5 billion.
In its letter to Metro, Leap said the offer was valued at $69.03 based on the Sept. 14 closing price of Metro stock.
That compared with Leap’s closing price of $74.32 on the same date, meaning it would be accepting a discounted price. Leap said during the prior 60 days, the stock offer was 14.4 percent below the average trading price for Leap.
“We believe that there is no reason for Leap to abandon its bright future prospects for such insufficient consideration,” said Leap in its response.
The company also cited concerns about MetroPCS’ market launches in New York and Los Angeles (which occurred there last week), big hurdles that cast doubt on Metro’s future growth prospects.
Since the announcement, Leap shares continued rising on the Nasdaq exchange and closed Sept. 19 at $79. Its 52-week range is $46.57 to $99.04.
In other news, Leap said director James Dondero resigned.
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WFI Changes Its Name To Kratos:
Wireless Facilities Inc., a former designer, builder and maintainer of wireless communications networks, has been exiting that industry in the past two years and decided it needed a new name to reflect the transition to defense government contracting.
Yet, we’re not sure the name, Kratos Defense and Security Solutions Inc., works so well. It sounds a bit like crater, which doesn’t have positive connotations in the equity world. It also acquired a new stock ticker, KTOS, effective Sept. 17.
The name, based on Greek mythology and signifying strength and power, was fitting, given the company’s emphasis on serving the federal security markets, said Chief Executive Officer Erik DeMarco.
DeMarco, a former president of Titan Corp., a defense communications contractor acquired by L3 Communications, decided after he was named WFI’s chief executive in 2004, that the wireless industry wasn’t the place to be. He arranged the sale of the company’s wireless engineering unit and its wireless deployment unit for a combined $68 million. The restructuring resulted in the shedding of about 1,100 employees, bringing Kratos’ current staff to about 1,200.
Kratos’ biggest customers these days are the Defense and Homeland Security departments. The company said its current business should generate revenue of about $200 million this year.
Kratos’ board may have also been inclined to rename itself following a stock options fraud that occurred from 1998 to 2005. The former administrator of the firm’s stock options issued more than 700,000 shares of WFI to himself and his wife, which they cashed to the tune of more than $6.3 million from 2002 to 2003, according to federal prosecutors.
In July, Vencent Donlan pleaded guilty to two counts of fraud and was scheduled to be sentenced this month.
At least in the short term, the Kratos name appeared to be working as the stock rose 29 cents since the name change to $2.59.
The company announced this month that it would be taking $55 million in charges on missed expenses due to the options fraud.
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Viking Systems Expands In Europe:
Viking Systems Inc., a San Diego maker of laparoscopic surgery devices, said it expanded its distribution network by signing an Austrian partner, Biomedica Medizinprodukte. The distributor will sell Viking’s vision system technology in Austria, the Czech Republic, Hungary, Slovakia, Switzerland, Poland and Romania.