Sunday, March 16, 2008

Bear Buyout?

JP Morgan is negotiating a deal to buyout troubled investment bank Bear Stearns for around $20/share. This is 1/3 less than the current trading price of $30 which is indicative of how bad things are for Bear. The deal is in hurry-up mode because they want to get something done before the Asian markets open tonight. Even if they do get it done I still think we see some blood in Asia because the damage in the credit crisis has spread into a new domain. Not many saw this modern version of a bank run coming, and this could be a clear indicator of a recession. The proposed deal is worth $2.2 B (Bear's real estate is worth $1.2B). You know things are bad when the real estate you own is worth more than your business!

UPDATE: http://www.cnbc.com/id/23663919

The deal was announced for $2/ share or roughly $236 MM. In addition for every share of Bear Stearns owned investors will receive 0.05473 shares of JP Morgan. This price is the epitome of a "fire sale" price and is downright scary if you ask me. Many people want to know the true value of many financial service companies' balance sheets. Well here you go and I don't think this is a unique situation. Meanwhile markets are down in Asia which will probably be the same case here in the morning. Word of advice: Sleep in tomorrow and when you do wake up don't check your portfolio unless that is you want to buy more.

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3 comments:

Unknown said...

$2 a share!!!!! or 236 million... I could buy an NBA team for that much. This is ridiculous.

March 16, 2008 at 11:38 PM
Ardent Economist said...

You stated that "In addition for every share of Bear Stearns owned investors will receive 0.05473 shares of JP Morgan." In fact, as the deal has currently been announced it is an all equity deal. BSC shareholders will receive only JPM shares, which values each share at ~$2 based on JPM's Friday closing price. BSC owners won't be fortunate enough to get those $2/share in cash.

March 17, 2008 at 3:01 AM
Gordon Chaffin said...

This is the definition of a panic deal. The stigma of "Level 3" assets and other foggy accounting tricks has hurt the confidence of wall street more than it has revealed descrepancy between estimated and actual asset value. This is ridiculous. The Fed is in a panic. Main Street continues to bleed good companies. And all we do is look to Alan Greenspan for encouragement and Ben Bernanke for free money. Ben's being marginalized and he can't see the forest through the trees. I hipe Bear is actually worth 1000% what JPMorgan paid for it and JPMorgan owns the street in the next few years.

March 17, 2008 at 8:29 AM

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