That's Bull Stearns, not Bear Stearns - Barron's

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The Opportunity in Bear Stearns' Adversity by Andrew Bary

Summary: Credit market woes have hurt Bear Stearns' (BSC) mortgage trading and LBO financing businesses. The investment bank's shares are down 32% this year, vs. 10% for rivals Goldman Sachs (GS) and Morgan Stanley (MS). Bear's lucrative brokerage or fixed income business accounts for 45% of revenues, but 30% of that is in mortgage trading which has suffered from subprime fallout. Investors worry over Bear's stability after it shuttered two hedge funds and a third one wobbles. Bear's risk arbitrage business is down as investors increasingly question LBO viability-- its $9b in LBO commitments could mean a $500 million Q2 loss. Bear counters that its LBO commitments are hedged and still profitable, and that it is liquid and thrives in volatile markets. Barron's thinks these setbacks make Bear a more attractive takeover target: 1) Shares trading at $110 are at 1.2x book value vs. rival Lehman Brothers (LEH) 1.6x book price, and Goldman's 2.2x book. 2) Bear will swallow easier as a "small cap" with just $13 billion in equity capital vs. MS's $40b and Goldman's $35b. 3) Bear owns valuable real estate. 4) Bear is 1/3 employee-owned. Loyal workers may prefer a possibly $200/share buyout price over multi-million dollar market gyrations.

Related Links: Bear Stearns' P/E, Price-To-Book Nowhere Near All-Time Lows • The Bear Case On Bear Stearns's Credit Portfolio • Open Thread: Bear Stearns

BSC LEH MS GS 1-yr. chart:

Comments

[bryanz:]

Loyal workers may very well prefer a $200/share buyout, but who's going to cough up a 45% premium on stock that's been beaten down, and apparently rightfully so? I'm sure Yahoo shareholders would jump at a $40 buyout offer too, but given the market it just doesn't seem realistic. I'm not going to call BSC a dog, because it's still one hell of a company and if it falls back into double digits it may be tempting. But the whole financial industry is so volatile right now that unless you plan on plopping down your cash on BSC and then not touching it for a couple years, the risk/reward is probably much better in other places.

2007 Aug 13 06:06 PM

[Timmay:]

It's official: JPMorgan Buying Bear Stearns For $2 Per Share
More here: timothysykes.com/2008/.../

2008 Mar 16 07:42 PM