Milwaukee – Mortgage insurer MGIC Investment Corp. abandoned its $5 billion bid to buy rival Radian Group Inc. on Wednesday, saying it was in each other’s best interest to concentrate on surviving in the faltering mortgage industry.
Radian had vowed to see the deal through when MGIC announced in August it wanted to back out. But chief executive S.A. Ibrahim said Wednesday that Radian didn’t want to fight and instead needed to weather what he called “an industrywide scramble to survive.”
Investors seemed hopeful for both companies after news of the agreement.
Though Radian’s shares tumbled as much as 9 percent after the market opened Wednesday, they closed up 16 cents at $18.27. MGIC shares fell 29 cents to end at $30.05.
MGIC, based in Milwaukee, had agreed in February to pay about $5 billion in stock for Radian, valuing its shares at $60.78. Shares of MGIC closed the day the deal was announced at $70.09.
As problems mounted in the mortgage market, both companies saw their shares tumble and the deal’s value sink.
MGIC said it did not believe it had to complete its purchase of Philadelphia-based Radian because their joint interest in subprime-mortgage investor C-Bass LLC could be worthless.
The decision to end the deal was mutual, both companies said.
Neither party paid the other to get out of the agreement, according to a news release. The original agreement said there would be no breakup fee if a decision was mutual.
Both companies’ shareholders had already approved the deal, which MGIC had said would close in early October.
But woes felt throughout the mortgage industry made the deal difficult to finish, said Michael Zimmerman, MGIC’s vice president of investor relations.
Tenth day of Libor increase
The London interbank offered rate, or Libor, interest rate banks charge one another to borrow in dollars for three months rose for a 10th day on concern that losses on securities linked to U.S. subprime mortgages will increase, keeping lenders from offering long-term cash:
5.72%
Libor rate, its highest since January 2001, up from 5.70 percent Tuesday and 5.36 percent at the end of July
47
Basis points that the three-month dollar Libor rate is above the Federal Reserve’s target federal funds rate, the overnight lending rate between U.S. banks; it has averaged 21 basis points more than the benchmark rate the past five years
5.18%
Fed funds rate, down from 5.31 percent at the start of Wednesday’s trading
WHAT THEY’RE SAYING
“The (credit) crisis is still pretty bad. We are a long way from being out of the woods.”
E. Craig Coats Jr., head of fixed income in New York at Keefe Bruyette & Woods Inc.
