Cendant Corp. signaled Tuesday that it is closing in on a sale of its mortgage unit.
The New York travel and real estate giant did not identify the prospective buyer, but speculation centered on Countrywide Financial Corp., which reportedly bid for the business this year.
Cendant Mortgage of Mount Laurel, N.J., would be the first major mortgage acquisition for Countrywide. The Calabasas, Calif., company began telling investors last year that it might make such a purchase, but it has continued to tout its focus on organic growth.
Analysts and observers said Tuesday that Countrywide could easily swallow Cendant Mortgage, would probably get the unit for an attractive price, and probably would not follow up with more deals anytime soon.
"There's a difference between making strategic acquisitions and making acquisitions your strategy," said Michael D. Cohen, an analyst at Susquehanna Financial Group LLLP of Bala-Cynwyd, Pa.
Countrywide's motivation for buying Cendant Mortgage would have more to do with the opportunity to pick it up cheap than a goal of achieving a nationwide market share of 30% in originations and servicing by 2008, he said.
Cendant said the transaction under discussion would generate a net profit between $750 million and $1 billion, after repayment of approximately $5 billion to $6 billion of debt. The deal also would create an ongoing relationship between the parties, providing for Cendant's continued participation in the mortgage business. The structure is still being discussed.
In an April conference call, Henry R. Silverman, Cendant's chairman, chief executive, and president, said it would not sell its mortgage business to Countrywide.
But on Tuesday a Cendant spokesman would not say whether Mr. Silverman's statement still held true. Cendant is to report second-quarter earnings today, and the spokesman said it expects to be questioned on its plans during a Thursday morning conference call.
A Countrywide spokeswoman would not discuss "rumors."
Mike McMahon, an analyst at Sandler O'Neill & Partners LP, said there is "tremendous irony" in Cendant's plan to sell the unit. As companies with mortgage operations confront rising rates, demand is expected to grow for the private-label outsourcing Cendant does for clients such as Merrill Lynch & Co. Inc., Charles Schwab Corp., and American Express Co.
Countrywide launched a private-label outsourcing operation in 2001. In March, the operation's head, Ken Harthausen, told American Banker that centers in Plano, Tex., and Fort Lauderdale, Fla., provide services for 85 clients.
Mr. McMahon said Cendant Mortgage presents an opportunity for Countrywide to expand this business more quickly than it could on its own.
"You can't just go out and build an outsourcing operation and have scale and be the No. 1 player overnight," he said.
For Countrywide, "doing one integration would not be a Herculean task," especially because Cendant's operation is centralized.
Mark Springer, the president of MH Springer & Associates, a West Lake Village, Calif., executive search firm used by Countrywide, said the lender's technological edge has enabled it to attract 400 to 500 new salespeople a month. The technology would make it possible to quickly fix Cendant's business, which has struggled amid rising rates, he said.
Cendant clients would also enjoy the improvement, Mr. Springer said. "I believe all those organizations would be thrilled to have the efficiencies."
On CNBC last month, Countrywide's chairman and CEO, Angelo Mozilo, said its organic growth strategy helped it to navigate the post-refi-boom waters better than Washington Mutual Inc.
"Although we've have never purchased anything, it doesn't mean that we won't in the future," Mr. Mozilo said. "I believe we have the management talent to do it right if we do it."
