Bank of America Corp.'s takeover of Countrywide Financial Corp. could be wrapped up as early as next week, but first it must clear one last hurdle — getting the OK from the struggling mortgage lender's shareholders.
Countrywide shareholders are scheduled to vote on the proposed buyout Wednesday morning during a special meeting at the lender's headquarters in Calabasas, Calif.
The all-stock deal, valued in January at about $4 billion, is now valued at around $2.8 billion, reflecting a decline in Bank of America's stock price over the last six months.
Countrywide's board, which has unanimously backed the transaction, needs stockholders to vote a majority of the company's outstanding shares in favor of the deal.
Legg Mason Capital Management Inc., which now holds the largest Countrywide stake at 14.7 percent, plans to vote its shares in support of the buyout, spokeswoman Mary Athridge said Tuesday.
It's widely expected that most other Countrywide shareholders will follow suit.
"It's the only option they have at this point," Paul J. Miller Jr., an analyst at Friedman, Billings, Ramsey & Co., said Tuesday. "It's the last chapter, it's over with, and now Countrywide's problems become BofA's problems."
The deepening housing slump and lingering credit crisis have fueled deep losses at the nation's largest mortgage lender.
Countrywide lost about $1.6 billion in the last six months of 2007 and another $893 million in the first quarter of this year. It also faces numerous investigations and lawsuits related to its lending practices.
Illinois Attorney General Lisa Madigan's office said late Tuesday that she plans to file a civil lawsuit Wednesday against Countrywide claiming the lender engaged in "unfair and deceptive" practices to get homeowners to apply for risky mortgages far beyond their means.
Investors have worried that further deterioration in the mortgage market as home loan delinquencies and defaults increase could make it harder for Bank of America to manage Countrywide's portfolio of loans, leading to costly write-downs and hurting Bank of America's earnings.
Countrywide shareholders, meanwhile, have seen their stake in the company dwindle.
Countrywide shares lost 80 percent of their value by the end of 2007. Shares had hit a five-year peak of $45.03 in February of that year.
The company's shares have been on a roller coaster since the takeover deal was disclosed as doubts arose among many investors that Bank of America would back out of the deal.
Countrywide shares rose 21 cents, or 4.7 percent, to $4.66 Tuesday. Shares of Bank of America gained 74 cents, or 2.9 percent, to $26.62.
The buyout terms call for Countrywide shareholders to receive 0.1822 of a share of Bank of America stock in exchange for each share of Countrywide, a conversion rate of about $4.85 per share.
Glass Lewis & Co. and ISS/RiskMetrics Group are among the proxy advisory firms who have recommended Countrywide shareholders approve the deal.
Assuming shareholders give their approval, Charlotte, N.C.-based Bank of America has said it could close the deal as early as July 1.
Earlier this month, the Federal Reserve cleared the way for the acquisition, which would give Bank of America control of 20 percent to 25 percent of the home loan market.