Annaly Makes Its Move on Crexus: Is Chimera Next?


It promises to be an exciting week for fans of Annaly Capital . After its somewhat surprising announcement last November, the venerable mortgage REIT made good on its intention to buy up the shares of CreXus Investments not already in its portfolio by raising its bid at the end of January. Everyone sat tight for 45 days, during which CreXus was allowed to entertain other offers. Today, the bell sounded, and the deal is on.

A planned move into new territory
As Annaly has watched its spread tighten, it has been forced to look at other options. Always steadfast in its commitment to purchasing only mortgage-backed securities backed by Fannie and Freddie, the move into commercial paper was met with skepticism by some. Even critics admitted, however, that the move will likely immediately be accretive to Annaly's bottom line.

In a pre-dawn announcement, Annaly reported that its new subsidiary, CXS Acquisition Corporation, has started the ball rolling. The company has tendered its offer for $13.00 per share -- plus a sweetener for shareholders -- in a proposal that will expire at the close of business on the 16th of next month. All indications point to CreXus being welcomed further into the bosom of Annaly very soon.

What about Chimera?
Annaly knows CreXus well since it has managed the company through a subsidiary called FIDAC since 2009. Those in tune with Annaly know that in addition to the commercial MBS company, FIDAC also manages ChimeraInvestment , a hybrid mREIT with a reputation as a bit of a scalawag.

Might Annaly move next to acquire Chimera? It's certainly possible, despite that trust's dodgy reputation. Now that Annaly has finally decided to move outside of its longtime comfort zone, a hybrid mREIT might be just what it is looking for.

There are problems, however. After a silence of over one year, Chimera finally filed several disclosures that were appallingly overdue, and some of what it revealed makes the company look less than inviting.

However, the worst seems to be behind it, and investors didn't punish the stock. If Chimera continues to file timely -- something that may become more likely if it is bought outright by Annaly -- it may actually be able to turn its reputation around, pushing its shares higher than the 22% increase it has experienced so far this year.

Was the filing done, after all this time, to clear the decks for an offer from Annaly? Time will tell, but I think the answer is "yes."

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