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Hedge fund manager, long/short equity, value
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I thought it would be interesting to take a look at what a Lehman (LEH) take-over would imply for the valuation of financials.

I ran a screen for financials with market caps above $900m that trade in the US and trade below current book value. I then removed some of the more obscure names to narrow down the list and make it more succinct.

The below analysis shows that even if we assume LEH gets taken-out for $20 (which is +28% above current price and +45% above Thursday’s closing price), the deal would still only be at 42% of book value.

As you can see the majority of this “peer group” is trading above this multiple so if 42% of book is the current market clearing price for a battered financial it suggests more down-side for the group as acquirers will not be willing to pay up for these questionable assets.

click to enlarge images

Disclosure: Long NCC

Source: Lehman Brothers Take-over: Implications for Financials