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Daniel Lewis, Orange Capital Go Activist On PHH Corporation

PHH Corporation (NYSE:PHH) recently became an addition to the equity portfolio of Orange Capital, an activist hedge fund managed by Daniel Lewis. In a 13D filing with the Securities and Exchange Commission, Orange Capital disclosed the acquisition of almost 2.9 million shares, with the stake’s value amounting to $64.4 million, at the current price of PHH Corporation’s stock. In addition, Orange Capital said that it considers PHH an “attractive investment opportunity” and expressed some ideas that might help the company to bring more returns for shareholders.

PHH Corporation

“We believe there are both immediate and near-term options available to management that would improve shareholder returns while preserving, and in most cases enhancing, the Company’s credit profile. Specifically, we have four recommendations for management and the Board of Directors:

1)Create a captive finance vehicle which would own a significant stake in the Company’s newly originated and existing excess MSRs<

2)Hire a financial advisor to pursue a tax-efficient sale or IPO of Fleet Management

3)Immediately commence a share repurchase program or tender offer for $150 million of the Company’s common stock

4)After resolving outstanding repurchase obligations and securing new financing for newly originated MSRs, offer to exchange the 6% convertible notes due 2017 for a combination of cash and common stock

With these steps, we believe PHH’s share price would likely increase by over 67%,” Orange Capital said in a letter addressed to Glen A. Messina, President and Chief Executive Officer of PHH Corporation.

In addition to Orange Capital, which through the acquisition currently owns 5.0% of PHH Corporation, we should mention some other hedge funds that held shares of the company in the latest round of 13F filings. These hedge funds are: Senator Investment Group, managed by Doug Silverman and Alexander Klabin, Matt Sirovich and Jeremy Mindich’s Scopia Capital, and Israel Englander’s Millennium Management among others.

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Disclosure: none