Bank of America Moves to Head of Countrywide Line

Under the terms of the deal, Charlotte, N.C.-based Bank of America acquired $2 billion in the form of nonvoting, convertible preferred stock yielding 7.25 percent annually, Countrywide said. The shares can be converted into common shares of Countrywide at $18 a share, with certain restrictions.

If Bank of America were to convert its shares under Countrywide’s current share count, it would hold 16 percent to 17 percent of Countrywide shares, said Robert Stickler, a Bank of America spokesman. That would make Bank of America the biggest shareholder in Countrywide, ahead of Axa SA with an 11 percent stake. Other big investors include Legg Mason Inc. with an 8.7 percent holding and Barclays Global Investors with 8.5 percent.

Preferred shareholders always receive their dividends first and, in the event the company goes bankrupt, preferred shareholders are paid off before common stockholders. Some preferred shares have special voting rights to approve certain extraordinary events (such as the issuance of new shares or the approval of the acquisition of the company) or to elect directors, but most preferred shares provide no voting rights associated with them. Some preferred shares only gain voting rights when the preferred dividends are in arrears for a substantial time.

Bank of America also gained the right to match any offer for Countrywide, according to a Countrywide regulatory filing today. JPMorgan Chase & Co. analysts led by Vivek Juneja in New York said that “likely” gives Bank of America the opportunity to buy Countrywide “longer term.” Mozilo told CNBC that “Bank of America isn’t buying his company”.

Preferred stocks are generally considered a loan, as the shares have limited voting rights, thus helping to protect the value and voting rights of common stock shares. Often, preferred stocks are sold to increase a company’s debt and reduce the risk of a takeover when the price of common shares drops and an individual or entity purchases too many. Preferred stock shareholders always receive their dividends first and, in the event the company goes bankrupt, preferred shareholders are paid off before common stockholders. Some preferred shares have special voting rights to approve certain extraordinary events (such as the issuance of new shares or the approval of the acquisition of the company) or to elect directors, but most preferred shares provide no voting rights associated with them. Some preferred shares only gain voting rights when the preferred dividends are in arrears for a substantial time.

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