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New Century Battling Investors

New Century Battling Investors

Greenlight Capital proposing slate of directors

February 22, 2006


photo of Coco Salazar
New Century Financial Corp. is fighting a slate of directors proposed by a group of investors.

The real estate investment trust is not welcoming attempts by some investors to appoint directors to its board.

Greenlight Capital LLC, among other investors, recently amended a 13D filing with the Securities and Exchange Commission, notifying of an intention to file a proxy statement and nominate three directors to New Century’s board at the 2006 annual meeting.

In discussions with the Irvine, Calif.-based lender since August 2005, Greenlight President David Einhorn has reportedly expressed concern over a variety of matters related to the company’s business strategy, including his desire to join the board in order to actively participate in such, and Greenlight’s desire that New Century focus on “per share” value maximization.

The board’s offer that Einhorn make periodic formal presentations to the board in lieu of a seat, leaves Greenlight “with no choice other than to propose its own slate of directors for election,” the recent amended filing said.

The three nominees are Einhorn, and two Greenlight investors, David A. Cohen and Thomas J. Edelman, according to the filing.

In a response announcement Friday, Fredric J. Forster, New Century lead independent director, said, the filing “mischaracterizes the ever changing set of issues Greenlight has raised since its amended 13D filing in April 2005, in which it indicated its dissatisfaction with the company’s portfolio strategy a mere seven months after our REIT conversion was approved by well over 90 percent of shares voted.

“Because we believe that Greenlight’s ultimate goal is to undo the long-term strategy of New Century, the presence of Greenlight’s nominees on our Board of Directors would not be in the best interest of all stockholders.”

Greenlight and other shareholders, who hold a 9.1% stake in New Century, cited in the April filing that the lender’s “multiyear strategy to receive a higher price-earnings multiple by building a portfolio of loans to complement its loan origination business has failed.”

Irvine, Calif.-based New Century noted it has raised its dividend in five successive quarters since converting to a REIT in October 2004 and its anticipated 2006 dividend of $7.30 per share is $0.80 above last year’s dividend.

Additionally, New Century noted that in the five years ended Feb. 15, 2006, it has delivered total stockholder returns of 643 percent and has delivered returns of 148 percent since first announcing in late January 2003 that it would be building a portfolio of mortgage loans, compared to 25 percent and 56 percent, respectively, for the S&P 500 Financial Index over the same time periods. Furthermore, in the past three years through yearend 2005, its book value per share has grown at an annual rate of 51 percent to $35.17.

Einhorn presented his views to the full board last August, and New Century has, with assistance from outside advisors, “carefully and thoroughly analyzed” his concerns, according to the announcement.”

“Although we agreed on certain points, we firmly believe our strategy and capital allocation practices offer the best means to maximize stockholder value over the long term,” New Century’s Forster said. “We evaluate capital allocation strategies on an ongoing basis and make changes when market conditions warrant and when stockholder returns can be enhanced by other means, as evidenced by our stock repurchase program announced in November 2005.

“Einhorn notified me that he would seek to run a competing slate of directors at our 2006 Annual Meeting unless New Century would agree to certain demands. Given our history of open conversations, careful analysis of his ideas and willingness to continue our dialogue, we were disappointed that he has decided to pursue this course of action.

Greenlight is currently declining to comment beyond the filing.

Countrywide Financial Corp. recently suggested the mortgage sector’s shrinking profit margins in the fourth quarter were in part due to “the Ameriquests and New Centuries of the world,” the key “irresponsible players” who priced loans too low as a means to retain market share.

Coco Salazar is an assistant editor and staff writer for

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