Sunday, January 2, 2011

Rambling Speculation on RAM Takeover

If I may bring the quality of posts down here for a moment...

I can see the 9.9% voting rights limit throwing a wrench in any outright takeover offers. Especially if it's known that Calliope (38% owner) will vote against at whatever price level. When I spoke with McCarthy he mentioned that its most desirable to do portfolio acquisitions at the commutation/recapture level in order to avoid holding company volatility. If you acquire a piece of the common but can't get the rest then it would create incremental volatility in OCI on the balance sheet. I can understand them wanting to avoid volatility as confidence in their financial position determines their pricing power. But it would be so small compared to their balance sheet! I still think they should be accumulating on the open market.

If they tender or offer for say 1/2 or even 2/3 of Operating (not adjusted) book value or $2.5-$3.5, I could see it failing. Then if it failed the common and preferreds would have rocketed higher and the opportunity to accumulate on the open market is not as attractive. But still why not acquire on the open market or tender, you won't hit your target if you don't take the shot. Unless...

MBIA or Macquarie owns most of the preferreds. This doesn't look to be the case, but if it were then things might make a little more sense. A takeover would then serve to enrich a weakened competitor or possible new entrant. It could give Macquarie that push it needs to enter the market.

But now we have strayed deep into speculation and far from anything likely. What I think is happening is the preferreds are rotting away in some massive multi billion dollar portfolios where they are hardly noticed or somebody just likes them or somebody doesn't want to recognize the loss on them or a bit of all three. Meanwhile, Assured is just focused on operations and so they are missing out on highly accretive capital markets opportunities. Just ask Chris at Trafalet.

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