Observers may get some clarity today on the fate of CompuCredit Corp.’s long-stalled deal to buy CardWorks Inc.
According to a securities filing by CompuCredit last week, CardWorks can back out of the deal until today, or when it closes on a loan it has been seeking from Merrill Lynch & Co. Inc., whichever comes first.
CompuCredit, of Atlanta announced in September that it had a deal to buy CardWorks, of Woodbury, N.Y., for $270 million in cash. Since then the price has increased, and CompuCredit has brought in Merrill as a partner. As the deal currently stands, CompuCredit would buy 80% of CardWorks; Merrill would buy the rest.
The longer the deal takes to close, the more CompuCredit would pay for its share — $300 million if the deal closes by Sept. 1, or $302.5 million if it closes between Sept. 1 and Oct. 2. The filing did not say what the price would be on or after Oct. 2.
The companies would not discuss the deal.
Moshe Orenbuch, an analyst at Credit Suisse Group, wrote in a report issued last month that the price increase is “equal to or less than the earnings of … [CardWorks] since the deal was first expected to close.”
CardWorks’ Merrick Bank, a $736 million-asset industrial loan bank in South Jordan, Utah, alone earned $13.6 million in the first quarter, he wrote. Therefore, even a price of $300 million to $302.5 million is “still quite favorable for CompuCredit, and is evidence that both parties want this deal to go forward.”
The filing said that if the Merrill loan goes through, and the deal closes, CompuCredit would have to pay back part of the loan. However, if the deal does not close by Oct. 2, CompuCredit would not have to pay Merrill for interest and fees on the loan.
Mr. Orenbuch attributed the delay to the Federal Deposit Insurance Corp., which he said has not approved any ILC applications because its board has been “incomplete.” But now that Sheila Bair has become the FDIC’s chairman, Mr. Orenbuch wrote, he believes “that this process could move forward.”
