Wall Street may not appreciate BNC Mortgage Corp., but its managers figure they know a good deal when they see it.
An investment group led by top BNC managers is offering to pay about $47 million, or $10 a share, for the Irvine lender, which specializes in making residential loans to borrowers with poor credit.
The price represents a 35% premium over the company's stock price before the deal was announced. But it's a bargain compared with the $9.50 a share that investors paid in the 1998 initial public offering.
Further, based on the recent sales of similar mortgage lenders, BNC is selling at a substantial discount. For example, Long Beach Financial Corp. in Orange was acquired last year by Washington Mutual for about $350 million, or more than three times the company's book value.
Applying a similar multiple to BNC's book value would suggest a value of more than $90 million.
Finally, BNC is still sitting on loads of cash that it raised--and hasn't spent--when it went public. The company has about $30 million on its books, which, subtracted from the purchase price, makes the management-led offer even cheaper.
BNC President Kelly Monahan defended the buyout offer, noting that the company had hired an outside auditor to ensure that shareholders were getting a good price.
"If someone else wants to come in, there is room for a superior offer," Monahan said.
Under the terms of the deal, any bidder would be required to pay a $2-million breakup fee.
Edmund Sanders covers financial institutions and fraud for The Times. He can be reached at (714) 966-5811 and at email@example.com.