Shareholder Class Action - Corporate Transactions
Countrywide Financial Corporation (NYSE: CFC)

Link to Complaint:

• January 15, 2008 - Caiafa v. Mozilo, et al.

      Chimicles & Tikellis LLP has filed a class action lawsuit, on behalf of shareholders of Countrywide Financial Corporation ("Countrywide"), in the Court of Chancery of the State of Delaware, challenging the proposed acquisition of all of the outstanding shares of Countrywide stock by Bank of America Corporation ("BOA"). The Action alleges that the proposed acquisition by BOA is not in the best interests of Countrywide's shareholders because, among other things, is not fairly priced, BOA is making an opportunistic offer, BOA has an unfettered right to match any Third Party acquisition proposal per the Investment Agreement, and there was a lack of any effective market check by Countrywide's Board in connection with their considering BOA's offer. Given the failure of Countrywide's Board to ensure the best deal and fair value for Countrywide shareholders, only independent shareholder litigants are now in a position to ensure that the Countrywide shareholders will not be forced to exchange their shares for less than fair compensation. If you are a current Countrywide shareholder please contact Pamela Tikellis or Scott Tucker at (302) 656-2500 to discuss your rights in connection with this litigation and matter.

      On January 11, 2008, shortly after Countrywide traded at its all time low, Countrywide and BOA announced they had entered into a merger agreement, whereby BOA would acquire all of the outstanding Countrywide shares for .1822 shares of BOA common stock or roughly $7.16 per share ("Merger"). The Merger was timed by BOA to take advantage of the decimation of Countrywide's stock price including most recently false and unsubstantiated rumors of bankruptcy, which BOA knew to be incorrect. After exhaustive due diligence in August 2007, BOA purchased 16% of Countrywide for $2 billion. As part of its $2 billion infusion on August 22, 2007 to Countrywide, BOA received the right to match any third party acquisition proposal, in effect deterring any competing proposals. The Merger announced on January 11, 2008 values Countrywide at just $4.4 billion.

      The Action alleges that: (1) the consideration to be paid under the terms of the Merger significantly undervalues Countrywide; (2) the Merger was opportunistically timed by BOA to take advantage of a dip in Countrywide's stock; and (3) there was no effort to canvass the market to seek the highest value for Countrywide shareholders. The low price BOA is paying for Countrywide was highlighted in a January 11, 2008 Fortune article titled, "Why the Countrywide deal makes sense: whether Wall Street likes it or not, Bank of America's Ken Lewis is getting a good deal, according to Shawn Tully's number crunching." In this article, Shawn Tully calculated Countrywide's earnings' stream at a value of $13 billion, $9 billion more than the $4 billion price BOA is paying for Countrywide. In a January 12, 2008 article in The New York Times by Charles Duhigg titled, "A Balancing Act," Tom Brown, a Hedge Fund Manager, was quoted as saying: "[t]here's an awful lot of meat on the bones at Countrywide, and Ken [BOA CEO] is getting it at a great price." According to a MarketWatch article, the deal price is less than one-third of Countrywide's book value and roughly 2.9 times forecasted 2008 earnings. Typically, lenders sell for at least one times book and seven times estimated future earnings.

      In addition to the timing of the Merger, the Investment Agreement between Countrywide and BOA effectively deterred any other third parties from bidding for Countrywide. Under the rights given to BOA in the Investment Agreement, a competing bidder seeking to make a superior bid would have to pay (indirectly) BOA any termination fee agreed to in the merger agreement. Moreover, the terms of the Investment Agreement make it even more difficult and costly for a competing bidder, because BOA has the right to continually match any competing bid. Thus, a competing bidder would have to conduct due diligence, which may cost millions of dollars, without any assurance that its efforts would culminate in a deal. Tellingly, when BOA entered into the Investment Agreement it purchased 16% of the Company for $2 billion, under the terms of the Merger BOA will now acquire the remaining 84% of the Company for $4 billion.

      Moreover, unlike the pittance the public shareholders of Countrywide will receive for their shares, Countrywide CEO Mozilo will receive a windfall as a result of the Merger. Despite having overseen Countrywide's recent decline as a consequence of the number of underperforming mortgages which it wrote, Mozilo will receive a package worth potentially over $100 million. Moreover, Mozilo reportedly will receive up to $115 million in severance in cash and stock if he resigns or is fired, and Mozilo will receive other substantial perks including use of Company aircraft and country club fees. This is in addition to the $145 million in stock that Mozilo sold during the past year.

      On January 17, 2008, Countrywide released the Merger Agreement. Several additional claims will be asserted on behalf of Countrywide's shareholders based on the terms of the Merger Agreement. Among other things, the Merger Agreement demonstrates the failure of the shareholders' fiduciaries to maximize shareholder value by: its requirements that Countrywide give preferential treatment to BOA if it receives a competing proposal from a third party; imposing a $160 million termination fee on Countrywide; abrogating certain fiduciary duties of Countrywide's Board to BOA; and providing for additional cash and stock awards to several Countrywide Officers and members of the Board of Directors. The opportunistic timing of the Merger Agreement, its terms and special cash and equity compensation grants to certain Countrywide officers and directors are clear breaches of fiduciary duty and demonstrate that the Countrywide Board did not act in the best interest of the public shareholders.

      If you wish to discuss this Action further, have any questions concerning your rights or interests, would like to obtain a copy of C&T's Client Advisory on this matter, or need additional information on this Action please contact:

Pamela S. Tikellis -- E-Mail: pst@chimicles.com
Scott M. Tucker -- E-Mail: smt@chimicles.com
CHIMICLES & TIKELLIS LLP
One Rodney Square
P.O. Box 1035
Wilmington, Delaware 19899
(302) 656-2500
(302) 656-9053 (fax)

Case Investigations

Recent Case Developments

Firm News

Current Cases

   Tuesday, May 13th, 2008