October 3, 2012
Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of loan servicer Ocwen Financial (NYSE: OCN ) surged 19% today after acquiring Homeward Residential Holdings from private equity firm WL Ross & Co. in a deal worth about $750 million.
So what: Ocwen will pay $588 million in cash and $162 million in convertible preferred stock for Homeward, which services about 422,000 mortgage loans with an aggregate unpaid principal balance of more than $77 billion. Homeward launched its origination business just last year and is already operating at a $10 billion annual run-rate, giving Ocwen investors plenty of confidence in the deal's potential to bolster growth.
Now what: After normalizing for transition-related expenses, the acquisition is expected to be immediately accretive to Ocwen's earnings. "We are excited about the synergistic combination of the attractive servicing portfolio and platform, as well as the origination platform which will provide organic growth and will further Ocwen's ability to work with existing borrowers on refinancing opportunities," Ocwen CEO Ron Faris said. With the stock busting through to a new 52-week high and now up a whopping 170% over the past year, however, I'd wait for a significant pullback before buying into that bullishness.
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