Challenges for Ken Lewis with Countrywide Financial buyout

Yesterday Bank of America and Countrywide Financial annouce buyout plan by BoA. Currently Countrywide Financial (CFC) is facing financial crisis and rumour were that it may have to file for bankrupcy chapter 11. It seems that Ken Lewis has probably taken this step for following reasons

• He invested $2 billions last year and if CFC goes bankrupt, BoA is one of the biggest loser and in a short span of just few months. It was going like dropping money in the well. So, perhaps he has taken this step to save that money. Now the question can arise whether is putting his good money after the bad money for the sake of sunk cost?
• If he (or the Bank of America) sees CFC a good business to invest in at $18 per share last year it is better business to invest at 57% discount rate.

If we analyse the financial details of the CFC, it seems that it a classical case of a successful company going bankrupt because of the cash flow crisis. It is clear that CFC has major short fall in cash flow but that alone can not make this a bad business altogether. It has countrywide presence and it has relationship with millions of customers in the USA. BoA can exploit all this to buit its biggest consumer finance empire in the USA. Good thing with this buyout is that Bank of America has got lots of cash so it can play safely with the cashflow crisis in the Countrywide Financial. To some extent, it seems that management of BoA is not too sure about the deal and thats why they have taken decision to have share option for this buyout. Though BoA will have to invest lot more money in cash in coming months if the deal goes through after the clearance from regulatory bodies.

Some of the challenges that Ken Lewis will face in coming years while integrating CFC with BoA are

• Bank Of America does not have much experience of integrating a (alomost bankrupt) company. So the management will have to think some new methods to operate CFC. Just by giving much needed cash to CFC will not solve the problem. They may have to sell some non core activities and concentrate on businesses that can be made better in future for better return.
• It will be great if Angelo R. Mozilo countinue to work for the CFC because he will know many minute details of the business and can better suggest where to take actions. So Ken will have to offere something so intresting that Mozilo does not go on holiday after selling the company.
• Ken will have to find area where both companies can help each other in terms of experience and selling/marketing new/existing financial products.
• He will have to convince the Board that returns will not come immediately and it may take few years before any significant return comes to the shareholders of Bank of America.
• He will have to be coutious with the term "Saviour of Countrywide Crisis or financial crisis". He will have to be quite handson on this buyout.

These are a few challenges that seems at this point to me. Though more challenges will come out as the deal will be complete. If he is successful in turning it a successful business again, he will be remembered for long time in business community but if he fails then his job and reputation is on stake.