Shares of Accredited Home Lenders rose as much as 41.2 percent on Friday after Lone Star Funds said it was prepared to buy the subprime lender at a lower price than it had previously agreed to, easing fears that the acquisition might fall apart.
The private equity firm late Thursday offered $8.50 per share for Accredited, valuing the lender at $214 million based on reported shares outstanding. That offer was 34.7 percent higher than Accredited's closing price on the Nasdaq.
Lone Star had on June 4 agreed to pay $15.10 per share for Accredited, then valuing the company at about $400 million.
The revised offer was announced eight days after San Diego-based Accredited said it would lay off 1,600 of its 2,600 workers and shut most of its lending business, which originated $15.8 billion of home loans last year.
Lone Star had previously sought to back out of the merger, citing a "drastic deterioration" in Accredited's business. That triggered litigation in Delaware Chancery Court.
"The fact Lone Star sees value suggests the market may be getting more rational," said Kevin Fitzsimmons, an analyst at Sandler O'Neill & Partners in New York. "The value may have been there even two or three weeks ago, but no one was willing to recognize it."
The revised offer came amid growing investor optimism that federal regulators would not let housing-related credit problems unduly damage the economy.
Accredited spokeswoman Victoria Console did not immediately return requests for comment.
Subprime lenders such as Accredited make loans to people with poor credit. Many have struggled because defaults have risen and investors have stopped buying home loans they make, forcing them to either lend less or absorb loan losses. Dozens have quit the industry or gone bankrupt this year.
"Under current conditions the company may suffer further declines in value and have a difficult time surviving as a going concern," Lone Star Vice President Marc Lipshy said in an Aug. 30 letter to Accredited. "Swift action by the board of directors is needed to preserve the company's existing enterprise value."
On Thursday, tax preparer H&R Block Inc said it reopened talks on the sale of its money-losing Option One Mortgage Corp subprime unit to private equity firm Cerberus Capital Management.
Chief Executive Mark Ernst said H&R Block may close Option One's lending business and sell Cerberus just the loan servicing business, which he said remained "quite valuable."