Mortgage Insurers Call Off Proposed Merger

Rival mortgage insurers, the MGIC Investment Corporation and the Radian Group, scrapped their merger plan yesterday, the latest casualty of the turmoil in mortgage markets.

MGIC agreed in February to acquire Radian in a $5.47 billion all-stock deal. Since then, shares of both companies have lost more than half their value amid a downturn in mortgage and housing markets, fueling rising losses in the loans and bonds they insure.

As a result of a tightening in the mortgage and corporate debt markets, MGIC said yesterday that the merger no longer made sense.

“Market conditions changed since that point in time,” the chief executive of MGIC, Curt S. Culver, said.

MGIC had been counting on the sale of C-BASS, a subprime mortgage investment vehicle jointly owned by MGIC and Radian, and an offering of hybrid debt to finance a significant stock buyback.

“Those options are not available today, and they played a big role in this merger being accretive,” Mr. Culver said. “That’s why this deal went away from us.”

The breakup comes two weeks after MGIC filed suit to force Radian to divulge information that MGIC could use to walk away from the deal. MGIC, based in Milwaukee, argued that it was not obligated to complete the merger, given the deterioration in the business.

A week earlier, the companies revealed that their $1.03 billion investment in C-BASS could be worthless, after defaults and margin calls mounted.

Radian told analysts that a C-BASS sale “remains a possibility,” though Mr. Culver said there were no bidders and the business would most likely be sold back to management. Most of the investment will be written off.

In connection with the end of the merger pact, litigation between the two parties was dropped and no payments were exchanged.

Source: http://www.nytimes.com/2007/09/06/business/06mortgage.html?ref=topics&_r=0