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Tuesday, Jul 23, 2024

What Does Accredited’s Share Price Portend for Hedge Fund Acquisition?

When Accredited Home Lenders Holding Co. announced its sale to a Texas hedge fund last month, it looked like the best deal the troubled company and its investors could hope for. After all, the subprime mortgage market is still tanking and the survival rate for the industry has been minimal.

But a look at what’s going on with Accredited’s stock since the deal was struck may provoke concern.

At the close of June 4, the day the acquisition was announced, the stock, traded under LEND on Nasdaq, shot up $1.36 to close at $15.12, or 2 cents above the agreed upon offer price. But since that date, LEND has consistently lost value and dipped as low as $13.05 on June 27. While the next several days of trading pushed it back up to $13.57, the market is reacting skittishly to this acquisition.

Bud Leedom, publisher of the California Stock Report, an investor newsletter based in San Diego, said he’s never seen anything like the discounted price for a company being acquired.

“For a deal that’s on the table and supposed to close in relatively short time, that price is way off the mark,” Leedom said. “When you see something like this where the price is more than a dollar off what the transaction agreement was, the deal almost never goes through.”

Part of the reason for the decline and volatility of Accredited’s stock is clearly the result of more investors shorting it. By shorting a stock, investors borrow the shares and sell these on the open market, hoping to buy them back at a lower price and make a profit.

But at least one hedge fund apparently feels confident about the transaction going forward.

Silver Point Capital LP, based in Greenwich, Conn., said in a recent filing with the Securities and Exchange Commission that it nearly doubled its stake in Accredited to 2.6 million shares, or 10.29 percent of the shares outstanding. In May, the hedge fund held 5.1 percent of the shares.

The filing June 29 didn’t report when Silver Point purchased its shares, but the purchase would make it Accredited’s largest single shareholder.

Another hedge fund, Second Curve Advisors, based in New York, held 2.2 million shares, or 10 percent of LEND, following the sale of 720,000 shares June 4. Second Curve has been acquiring LEND shares since last year.

Leedom said questions surround Lone Star Funds’ purchase, such as how much due diligence the Dallas-based hedge fund conducted before it agreed to buy Accredited.

At the time the agreement with Lone Star was signed, the parties said the tender offer for Accredited’s shares would begin in 10 days, and be completed in the third quarter.

In contrast to the tumult surrounding Accredited’s acquisition, the purchase of K2 Inc., a Carlsbad-based sporting goods company, appears to be on track, and without controversy.

Jarden Corp. and K2 announced the agreement April 25 in a cash and stock deal valued at $15.50 per share, or $766 million. On that date, shares of K2 on the New York Stock Exchange shot up 2 points, and have stayed consistently above $15.

Jarden, based in New York, was offering $10.85 in cash, plus 0.1086 shares of Jarden stock for each share of K2.

Including K2’s debt, the deal was valued at $1.2 billion.

The transaction is scheduled to be completed by the third quarter.

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Sempra Buying Wind Energy:

Sempra Generation, a subsidiary of Sempra Energy, said it has agreed to provide Southern California Edison with up to 250 megawatts of wind power from a wind turbine farm under construction in Baja California near the town of La Rumorosa, 70 miles southeast of San Diego.

Sempra Generation is developing the farm with partner Cannon Power Corp., a private company in San Diego. The project is expected to place 125 wind turbines along the eastern ridge of the Sierra Juarez mountains and generate 250 megawatts, Sempra said. A possible expansion in phases is under consideration.

Sempra said the capital investment is estimated at $400 million, and it would begin providing electric power to U.S. energy providers by 2010.

A megawatt can provide enough electricity to power 650 homes.

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PriceSmart Sees Profits, Stock Price Rise:

PriceSmart Inc., the San Diego operator of membership warehouse stores mainly in the Caribbean, reported net income of $5.2 million on revenue of $224.4 million for its third quarter ended May 31. That compared with net income of $3.2 million on revenue of $184.6 million for the like period of 2006.

For the nine months, PriceSmart reported net profit of $15.8 million on revenue of $658.6 million. That was up from net profit of $8.5 million on revenue of $547.8 million for the first nine months of the prior fiscal year.

PriceSmart shares, traded on Nasdaq under PSMT, hit a record high for the year, closing July 2 at $25.40. In the past 52 weeks, the stock has more than doubled in price, making it among the biggest gainers of local public companies.

The stock’s prior high was $24.83; the low in the past year was $11.62.

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Ticker Takes:

ImageWare Systems received new orders of more than $700,000 during May and early June. Nascent Wine Co. said a significant drop in the stock price last month was caused by a forced liquidation of a large stock position. MicroHoldings U.S. said it agreed to sell its video store subsidiary to Skybridge Technologies Inc., and will focus its business on telecom and international carrier services.

Send any news of locally based public companies to Mike Allen via e-mail at mallen@sdbj.com. He can be reached at (858) 277-6359.


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