MGIC, Radian Agree to Merge

A pair of powerhouses in the mortgage insurance business, MGIC Investment Corp., Milwaukee, and Radian Group Inc., Philadelphia, have agreed to merge.MGIC will exchange one share of its common stock for every 0.9658 shares of Radian. Late Tuesday morning Radian was trading at $66.35, up $5.51, while MGIC stood at $69.66, up $6.73. In a conference call discussing the deal, MGIC chairman and chief executive Curt Culver said half-jokingly that the move was about "re-establishing my credibility," as he has been preaching about mortgage insurance industry consolidation for the past five years. The parties project savings of $128 million annually as a result of the combination. They also project lost flow business volume of $12 billion in new insurance written by 2008. According to the Quarterly Data Report, the parties will have a combined market share of policies in force of nearly 38%. MGIC is already the largest player in the industry, with $173.4 billion of insurance in force, while Radian is ranked third, with $115.3 billion. Meanwhile, an early opinion on the transaction from Fitch Ratings has placed MGIC on Rating Watch Negative. Citing competitive pressures, Fitch said the merger "makes economic and strategic sense, and if consummated, the new entity will solidify its position as the premier mortgage insurer in the U.S." However, the deal would increase MGIC's risk profile, Fitch said.