Redfin switches to all-cash deal for Bay Equity

Redfin switched its consideration to Bay Equity Home Loans to all-cash as the real estate franchisor’s stock price was down by almost half since the deal was announced in January.

On Jan. 12, the first day of trading following the transaction’s announcement, Redfin closed at $34.36 per share. By April 1, when the acquisition was completed, Redfin’s closing price was $17.51 per share.

The original terms of the deal called for Bay Equity’s owners to receive two-thirds of the compensation in cash and one-third in stock.

“Under the terms of the merger agreement, Redfin has the option of paying a greater percentage of the purchase price, including up to 100%, in cash subject to certain conditions,” according to a statement in the company’s press release. “Redfin exercised this right and has elected to pay 100% of the purchase price in cash.”

The purchase price was slightly higher than originally proposed, to an estimated $137.8 million (subject to adjustments) from $135 million in the January announcement. This is a $72.5 million premium over Bay Equity’s tangible book value as of Feb. 28.

While Redfin had its own mortgage business prior to the transaction, it was on a much smaller scale, with only 250 employees (121 of those were eliminated because of the deal) and only offering conforming loan products. Given the current interest rate environment, a much-fuller product set is needed and that’s what Bay Equity offers, Redfin CEO Kelman said.

“As homebuyers struggle with affordability and bidding wars, it’s more important than ever for lenders and brokers to work together on every customer’s offer,” Kelman said in the press release. “There are many ups and downs ahead, but since signing the agreement in January, we’ve only felt better about it, and how much value it can deliver for our customers and shareholders alike.”