Bear Stearns Should Go for More Than $6 - Barron's

Barron's Andrew Bary thinks JP Morgan (JPM) CEO Jamie Dimon will not close on Bear Stearns (BSC) with his $2/share (now worth $2.50 because of a jump in JPM's stock), $320M offer.

His reasoning: BSC's annual earnings potential is a cool $1B. Its (last known) book value of more than $10B makes it worth $84/share. Its state-of-the-art Madison Ave. headquarters may be worth as much as $1.5B. Bernstein's Brad Hintz thinks Bear's "good businesses" are worth about $60/share; he thinks JPM's predicted $6B in "transaction related costs" is high. Factor in that the Fed is stepping up to the plate to take on the risk of $30B of Bear's most illiquid assets -- and it's easy to see why many disgruntled Bear investors and employees (who own about 1/3 of the company) think JPM is getting all the upside.

A rival offer seems unlikely due BSC's massive $395B balance sheet and the fact that JPM's bid included deterrents to other bidders. But Bary thinks Dimon could easily up his bid to $15-20/share -- which is what many think he originally planned to pay -- if the government lets him. Some suspect Treasury secretary Hank Paulson may be the one blocking a higher bid, so that the government doesn't appear to be bailing out speculators. Still, at a current $6, Bary says BSC looks like a "reasonable bet."

Comments

[RickRussellTX]

I hate to blame the Feds for "bailing out speculators", but it's time to call a spade a spade. If the JP Morgan wants to buy Bear Stearns and make a lowball offer because of bad assets in the Bear Stearns' portfolio, that's fine. They should hunker down over the table and hammer out a price.

But why is the government involved? From this outsider's perspective, it looks like nothing more than banking bigwigs trying to help out their golf buddies. The Fed should assist all banks, not just their buddies at Bear Stearns and JPM. Bernanke needs to preserve the impartiality of the Fed by walking away from this deal ASAP.

RR

[Frank G]

The stupidest thing I have every read here...

Why would he pay more? Your reasons, or lack of, have no merit. Its last known Book value represented that of a company that was a going concern... not one that is bankrupt. $6Bil has been set aside for this merger, which is more than the market cap of BSC on friday when it traded at $30 share.

This is just irresponsible reporting. The building is locked up JP can acquire it even if vote does not pass, JP has the right to issue 20% of shares to itself in the event any one shareholder obtains that many shares or when vote is rejected...

Deal is done. not a penny more. Where is the writers full disclosure? Obviously a Bear shareholder who has lost alot of money and is still in denial.

[WanderSF]

Barron's has been wrong so many times that I wouldn't take them seriously. Bear is out the door for two bucks. Anyone who bets differently is a loser. The idea that Morgan bank actually wants to pay more is nothing less than idiotic.

[Lisa]

JPM1101 and Frank G -- isn't this just a report of what Barron's wrote this weekend? I don't see any opinion from seekingalpha here.

[secdocs]

Everyone should read the docs....JPM has an asset option on the building if another bidder comes in or BSC defaults on the agreeement (i.e. a break-up fee). JPM has an option on the 19.9% of newly issued shares in a variety of situations and that does not included a "no" vote....that's just rumor.

So, read....or learn how to read better before you post your own BS.

That said, this deal will go through at $2.00....any extra money that JPM committs to this deal will go to retaining BSC employees.

[zenalgorithm]

Even at $2/share BSC is getting bailed out. They had a massive margin call - they reported that they have $43 billion worth of garbage MBS. There is no more value left in their account. With the $43 billion in MBS, BSC probably has negative equity. If any of us small investors got a margin call on all our holdings, because our account had gone to zero, we can't tell our brokerage to please not liquidate our assets since we have a house that's probably worth $500,000... Why should BSC be treated better than us? Taxpayers are footing the bill now for all the risk which BSC created in the first place by creating those CDOs and ridiculously leveraging over 30X.

If anything, the government/taxpayers should be getting that $2-$2.50/share for taking on this huge amount of risk, which BSC created.

BSC singlehandedly is the worst offender in this subprime mess. BSC has severely tarnished America's business reputation, and they are a huge reason why much of the market is illiquid right now.

BSC shareholders deserve nothing. Without the taxpayers immediately taking on this $30 billion in garbage MBS, the company is DOA. Punish foolish BSC shareholders who have known about the precarious leveraged situation at BSC for the past year, don't screw the taxpayers.

[PureTruthiness]

LONG LIVE BARRONS! LONG LIVE RUPERT MURDOCH! LONG LIVE RUPERT'S REPORTER ANDREW "Dopey" BARY!

I was short Bear all the way down from 84. It was a once in a lifetime hit. Barrons, Bary and various other rumor spreaders are now pumping Bear back up so that Rupert and I can hit it again. I love it. If an author wrote this in a work of fiction, I'd criticize him for making his story too fanciful

Somehow, I just knew we'd great quality analysis and reporting once Rupert Murdoch took over at Dow Jones.

The only problem is -- I can't decide if the story is out of Charles Dickens, Hans Christen Andersen, or the upcoming unauthorized auto biography of Eliot Spitzer.

Chapter 1: That nice guy, Jamie Dimon, really wants to pay $20 to the poor raggedy stock sellers at Bear Stearns, but those evil bankers, Bernanke and Paulson, conspire to force Dimon to pay just $2.

Chapter 2: Bernanke and Paulson are visited by the bunnies of Easter past, present and future. After being flogged and chastened by the $5000/hr bunny of Easter future named Kristen, the evil bankers avoid public disclosure by admitting the error of their ways. Henceforth they become great philanthropists, and remove their hands from Jamie Dimon's throat.

Chapter 3: Kind-hearted Jamie Dimon goes to the JPM shareholders, shows them pictures of the starving BSC shareholders and employees who used have millions but are now selling matches in the street, and the shareholders of JPM immediately insist that Jamie give the poor BSC folks $2.36 billion instead of just $236 million of the JPM shareholders money.

Chapter 4: The value of the little match girl's stock increases 10-fold, she is saved and does not freeze to death. The Lewis family has their fortune restored and can now afford to get Tiny Joey the operation he needs so he can walk again. Little Jimmy Cayne can afford to buy weed once more. Alan Schwartz and the Bear executives have their $10M bonuses restored. All this extra money flows immediately into the economy, increases the value of the dollar, ends the recession, real estate foreclosures, and the credit squeeze, everything is right with the world, and we all live happily ever after. -- THE END.

Yup, sounds like a "reasonable bet" to me, and to show you my heart's in the right place I will personally use my very own funds to sell shares to all of you desiring to buy them this Monday.

[bearmarket]

This article resembles most posts on the yahoo message boards. Pump everyone up for more money and sucker more longs in to be left holding the bag when this gets sold for the arranged $2 per share. Jamie Dimon will not up the bid. End of story. Barron's should stick to reporting the facts and not rumors from the message boards.

[Saint Xinon]

JPM great short.

only logical reason is

BSC + 30 billion $ << 0 $

Please check balance sheet of JPM & BSC for confirmation of fact...
just to add some spice...

check this also...

www.spiegel.de/interna...

can fed bail them out also ? who are buyers of ABX index trash after dust has gone down.... germans chinese indians arabs ???

and on the top of that JPM is/was 70:1 leveraged in December 2007... and all bankers in the world know about it....

[Maria]

Well, Market Watch just sent an email out -- right or wrong -- that Morgan may up the bid. Posted March 24, 2008 1:36 A.M.ET

[User 42641]

A lot of overconfidence on display from some of the people leaving comments here:

<i>"Deal is done. not a penny more. Where is the writers full disclosure? Obviously a Bear shareholder who has lost alot of money and is still in denial."</i>...
- Frank G

<i>"Barron'... has been wrong so many times that I wouldn't take them seriously. Bear is out the door for two bucks. Anyone who bets differently is a loser."</i>
- WanderSF

<i>"This article resembles most posts on the yahoo message boards. Pump everyone up for more money and sucker more longs in to be left holding the bag when this gets sold for the arranged $2 per share. Jamie Dimon will not up the bid. End of story. Barron's should stick to reporting the facts and not rumors from the message boards."</i>...
- bearmarket

As it turns out, JPMorgan did raise its bid. Instead of questioning the motives of the Seeking Alpha editor, the posters would do better to reflect on the behavioral biases which led them to conclude that a raised bid could never happen.

AD

[Woodrebel]

you're AD, and with proper prospective.

[Woodrebel]

**right