Fieldstone (FICC) Agress to Lower Buyout Price

On Friday, Credit-Based Asset Servicing and Securitization LLC (C-BASS) and Fieldstone Investment Corp (FICC) amended their merger agreement lowering Fieldstone’s buyout price from $5.53 to $4.00 per share.

“A severe downturn in the market for subprime loans — those to home buyers with weak or no credit history — has sharply reduced Fieldstone’s liquidity, forcing the lowered merger price”, Fieldstone Chief Executive Michael Sonnenfel said.

Under the original terms  C-BASS would have to pay several million dollars in break up fees if they were going to back out or lower the price of the deal.  Unfortunately for Fieldstone, they had almost no room for negotiation as C-BASS had the ultimate leverage on Fieldstone because if C-BASS didn’t buy Fieldstone, Fieldstone would most likely face liquidity issues and have to go into a forced liquidation.  When the Chief Executive of Fieldstone, Michael Sonnenfel, used the word forced to describe this transaction it really was because Fieldstone had practically no choice not to take this offer.

I do believe C-BASS made a bad business decision in lowering their bid.  Going to a business school, we constantly learn in our management class not to cut corners in business.  I believe this was an act of making money in the short term to lose out on larger gains in the future.  If C-BASS now decides to buy any other sub prime lender, they may be hesitant to sell to C-BASS and probably would search for another buyer first.