Hedge Fund Seeks to Scotch PHH Deal

Pennant Capital Management LLC, a Chatham, N.J.-based hedge fund with a 7.8% stake in PHH Corp., has called on the company to terminate its agreement to sell out to GE Capital and The Blackstone Group, a private equity giant.Instead, Pennant called on management to separate the company's two main businesses with the spinoff of its fleet management operations. This could boost shareholder returns by as much as 100% over the next three years, Pennant said in a letter to PHH management. "We believe that current conditions of the general mortgage market, the Company-specific circumstances and the tax implications of a sale and break-up of the Company will prevent realization of full value at this time," Pennant said in its letter, signed by managing member Alan Fournier. "We believe that instead, the Company should pursue a tax-free spin-off of the Fleet business." Pennant estimated that this would allow shareholders to realize a combined valuation of $48 to $66 per share over two or three years, a "vastly superior outcome" to the proposed sale to GE Capital. Under a deal announced March 15, GE Capital would acquire PHH for $31.50 a share, a total of $1.7 billion, then sell PHH's mortgage business to Blackstone for an undisclosed amount. PHH is one of the largest independent mortgage banks in the country, with a servicing portfolio of more than $150 billion.