First Franklin Financial Corp. and Ownit Mortgage Solutions Inc. have much in common: Bill Dallas, who founded First Franklin, now runs Ownit.
The two companies also expect to share a significant investor soon. Merrill Lynch & Co. Inc., which holds a minority stake in Ownit, announced last month that it would buy First Franklin, of San Jose, from National City Corp. for $1.3 billion.
A recipe for cooperation? Not so fast, Mr. Dallas says.
"If there is a strategy down the line of connecting the dots between the two companies, it might make some sense to them, because I was chief executive of First Franklin," he said in an interview last month.
For now, he said, it is business as usual.
"The No. 1 thing" that Merrill "wanted to do - and I think they accomplished that - was to begin to get scale," Mr. Dallas said. "They felt like they had to make an acquisition to do that."
As for his sales force at Ownit, he said he has delivered the message that the two companies are separate and would remain competitors.
Buying First Franklin would help Merrill in servicing, Mr. Dallas said, because First Franklin's servicing operation, combined with Merrill's servicer, Wilshire Credit Corp., of Beaverton, Ore., would have about $70 billion of unpaid principal.
Nationspoint, the online originator that Merrill would pick up as part of the First Franklin deal, "is something they wanted to do for portfolio retention," he said. "First Franklin's assets give them control of distribution."
Merrill "would be able to buy [and securitize] all of First Franklin's production and compete for ours," he said.
Mr. Dallas was one of a group of investors that bought the wholesaler Oakmont Mortgage in late 2003. The Agoura Hills, Calif., company took the Ownit name in 2004.
When Merrill bought its minority stake in Ownit last year, Mr. Dallas touted the deal as a way to increase Ownit's capital without having to deal with the hassles of being run by a parent company.
Merrill's deal for First Franklin is expected to close this year. National City bought the unit seven years ago from Mr. Dallas, who founded it in 1981 and built it into a major nonprime player. He said he did not give Merrill advice or otherwise participate in the decision to make the deal.
