Mortgage insurer MGIC Investment Corp. and rival Radian Group Inc. said Wednesday they are abandoning plans to combine the companies, citing troubles in the mortgage industry.
Radian’s shares tumbled nearly 9 percent in premarket trading, while MGIC shares edged up.
MGIC had agreed in February to pay about $5 billion in stock for Radian, but the deal’s value tumbled along with MGIC’s share price as problems mounted in the mortgage market.
MGIC said in August it did not believe it had to complete its purchase of Philadelphia-based Radian because their joint interest in subprime mortgage investor C-Bass LLC could be worthless.
MGIC, based in Milwaukee, and Radian, a credit risk manager, announced Wednesday they had agreed to end the deal, saying it was in each other’s best interest to stay independent. Neither party paid each other to get out of the agreement, a news release said.
Both companies’ shareholders have already approved the deal, which MGIC had said would close in early October.
The deal would have created a new company to be called MGIC Radian Financial Group Inc. The combined mortgage and credit risk insurance company was expected to have total assets of nearly $15 billion and insure some $290 billion worth of primary mortgages.
The two companies had been equal partners in C-Bass. The $1 billion partnership bet on mortgage credit risk by buying home loans and investments backed by mortgage debt. But mounting delinquencies and defaults pushed banks to make margin calls — demands for more cash — on credit lines held by C-Bass.
Analysts have said Radian may need the buyout to stay afloat. Standard & Poor’s has threatened to slash Radian’s credit rating if it does not become part of MGIC, which means it may not be qualified to insure certain types of mortgages.
But S.A. Ibrahim, Radian’s chief executive, said in a statement the company was sure it could survive on its own.
“While there are significant credit challenges in today’s mortgage market, we also believe that there are tremendous opportunities for our company in the mortgage insurance and financial guaranty markets, and our management team is moving aggressively to position Radian for future success,” he said in a statement.
A spokeswoman for MGIC did not immediately return a message left seeking comment.
The original deal valued shares of Radian at $60.78; that company’s shares closed Tuesday at $18.11, while shares of MGIC closed at $30.34, less than half the closing price of $70.09 the day the deal was announced.