Matrix Catches Fire on News of Southwest Securities Buyout

The deal is an all-stock transaction valued at about $110 million.
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Shares of

Matrix Bancorp

(MTXC)

shot up almost 80% Friday after

Southwest Securities Group

(SWS)

said it would purchase the Denver-based holding company in an all-stock transaction valued at about $110 million.

But shares of Southwest did not fare so well, sliding more than 11% on the news before recovering.

The agreement calls for Southwest Securities Group, which operates a full-service brokerage, investment banking, and asset management firm, to exchange 0.4715 shares of its common stock for each common share of Matrix Bancorp.

No date was offered for the closing of the transaction. The deal must be approved by the companies' boards of directors and shareholders as well as federal regulators.

Southwest officials touted the merger with Matrix, a banking and trust administration company, claiming it would boost earnings by creating opportunities to develop new business and broaden its customer base.

But investors saw the merger announcement as a signal that the Dallas-based investment firm might not be acquired itself. Southwest has been shopping itself around since March, when it announced it had retained

Bear Stearns

to advise it on strategic alternatives.

Analysts said the merger with Matrix Bancorp, a thrift holding company for

Matrix Bank

, could benefit Southwest. But it may be seen as halting, or holding up, the company's attempts to find a buyer.

"People assumed Southwest would be selling itself, so any move like this that indicates they aren't scares people," said Jeff Putterman, an analyst at the Minneapolis-based

George K. Baum

, who nonetheless called the merger an "astute business move."

Baum hasn't done any underwriting for the firm and maintains a strong buy rating on the stock.

Southwest President and Chief Executive Officer David Glatstein said the company has met with potential bidders but has not commented on specifics. Last month,

The Wall Street Journal

reported from Europe that Dutch financial services giant

ING

(ING) - Get Report

was interested in Southwest, citing unnamed analysts. Neither company has confirmed on the report.

One analyst contacted Friday described Southwest's more typical caller as a foreign non-bank corporation, like an insurance company. If so, the merger with Matrix could make the company even more attractive, with the addition of Matrix's extensive residential, commercial and mortgage banking operations and expansive customer base.

In a statement released Friday, Glatstein called the merger "a super opportunity to add to and develop our earnings by capitalizing on synergies with the merged group."

Investors certainly saw the merger as a boon for Matrix, sending the stock skyrocketing 78%, or 5 1/4, to close at 12. That's nearly double the stock's 52-week low of $6.375 reached just over a week ago. The stock had slid steadily since the start of the year.

But shares of Southwest went the opposite direction, plunging more than 11% before recovering slightly to end the day down 2 5/16, or 7%, at 32 1/8. That's about half the price at which it was trading a year ago.

Putterman predicts Southwest's stock price will be choppy for awhile, as the company continues talking with potential partners. He is still optimistic about Southwest's prospects for acquisition. Though the Matrix merger will likely slow down the process, the analyst predicts an announcement will be forthcoming within the next several months.