BofA buyout of Countrywide value can be debated on both sides of the coin. However as a shareholder I need to know the impact of the deal to my holdings. I believe the deal will be 3.47% dilution to my ownership.
BofA will issue .1822 of a share for each share of Countrywide. In addition it intends to issue another $2 Billion to boost capital. Any issuance of equity will dilute your ownership and you should expect the stock price to decline and I recon the decline is about 3.47% from pre-buyout price.
I have put the following table t show the effects of the stock issuance on BofA share price. Off course the analysis assumes all things are equal. I assume that BofA PE multiple will hold after te buyout however its Earnings Per Share (EPS) will be diluted as a result of share issuance.
|BofA||Pre Buyout||Capital Issue||CFC buyout||Post|
|# shares in Millions||4,401||50.6||105.439||4,557.04|
|Capital in Millions $||$2,000||$4,000|
I estimate that the price should decline to $38.13 to take into account the buyout. BofA declined to $38.5 on Friday but that can be attributed to weak market condition as the entire market declined by close to 2%. I do not think BofA price still reflect the dilution effect of the deal. So I will add to my position at $38 and under.