<If the deal dies, the stock could fall to 22. But bulls expect a rebound because PHH has a nice business mix, and its stock trades below tangible book value of $28 a share. Some big investors, including PHH's largest holder, Chatham, N.J.-based Pennant Capital, have opposed the buyout because they think it undervalues the company. Pennant holds a 9% stake.
"From a valuation standpoint, the stock is attractive," says Ben Silver, a portfolio manager at Pzena Investment Management in New York. He values the leasing business at around $20 per PHH share, or 14 to 15 times estimated 2007 cash earnings, and notes that the mortgage business has a tangible book value around $19 a share. He thinks PHH is worth at least the buyout price.
Unlike many mortgage companies, PHH doesn't take much risk. It's a mortgage outsourcer, meaning it originates loans on behalf of corporate customers, notably Merrill Lynch (MER) and Realogy. When a Merrill client calls his broker and asks for a loan, he's put in touch with PHH. PHH services $165 billion of loans and originated $40 billion last year. The delinquency rate on the loans it services is just 3%.>