MGIC, Radian to Merge

Mortgage insurers MGIC (MTG Quote) and Radian (RDN Quote) agreed to merge in a $4.9 billion stock swap.

The new company, to be called MGIC Radian Financial Group Inc., will have nearly $15 billion in total assets, more than $290 billion of primary mortgage insurance in force and a financial guaranty portfolio approximating $104 billion of net par outstanding.

Under the deal, 0.9658 shares of MGIC common stock will be exchanged for each share of Radian common stock. The merger is intended to qualify as a "tax-free reorganization" for U.S. shareholders.

Curt S. Culver, chief of MGIC, will serve as chairman and chief executive of the combined company. S.A. Ibrahim, CEO of Radian, will serve as the president and chief operating officer. Ibrahim will succeed Culver as chief executive in 2009 and as chairman in 2010.

The board of directors will comprise six members designated by MGIC and five members designated by Radian, but promptly following the consummation of the merger, MGIC Radian will nominate for director an additional Radian director to stand for election by the combined company's shareholders. The combined company's headquarters will be located in Milwaukee, Wis., and have operations in New York, in Philadelphia and internationally.

The combined company expects to realize aggregate cost savings of $128 million, pretax. Approximately 75% of this benefit is expected to be realized in 2008, and the full run-rate of cost savings is expected to be realized in 2009. The expected annual cost savings represent approximately 24% of the pro forma combined operating expense base. The combined company expects to incur restructuring costs of approximately $125 million to $150 million, pretax.

The transaction has been unanimously approved by each company's board of directors and is expected to be completed in the fourth quarter of 2007, subject to regulatory and shareholder approvals.

Assuming the achievement of planned cost reductions, the transaction, on a GAAP basis, is expected to be 2.8% accretive to MGIC's earnings per share in 2008 and 6.3% accretive to MGIC's earnings per share in 2009. On a cash basis, which excludes the impact of noncash items such as the amortization of intangibles, the transaction is expected to be 6.7% accretive to MGIC's earnings per share in 2008 and 9.5% accretive to MGIC's earnings per share in 2009.

To Radian, on a GAAP basis, the transaction is expected to be 4.7% accretive to Radian's earnings per share in 2008 and 8.2% accretive to Radian's earnings per share in 2009.

As part of the transaction, it currently is expected that MGIC Radian Financial Group will initially pay a dividend of $0.25 per share per quarter, which is the current MGIC quarterly dividend rate and represents an increase of $0.23 per share per quarter for Radian shareholders. All dividends are subject to applicable law and the discretion of the applicable company's board of directors.