bullsandbears

Buyout Not the Best Option for WaMu Shareholders

Let me begin by saying that rumors of a WM buyout are speculative and unfounded. Yes, Dimon would love to get his hands on WM. For nothing more than acquiring access to a major West Coast player in retail banking as well as exposure to the Florida markets. That would undoubtedly be a tremendous accomplishment of Dimon’s long term goal. WaMu has fought tooth and nail to remain independent and even at the cost of its shareholders, who have suffered tremendous loss and dilution. A brief history lesson takes us to a deal with TPG in a capital raise of 7.2 billion to shore up capital and remain independent in lieu of an offer from JPM for an all stock bid at $8.00 a share. Written into the TPG deal is the following:
“In the event that, within eighteen months of the closing of the transactions under the Investment Agreement, the Company (i) sells more than $500 million of common stock or other equity-linked securities at a price less than $8.75, or (ii) the Company engages in a change of control transaction wherein the implied value of the Company’s common stock is less than $8.75, upon the occurrence of each such event the Company is required to pay to those Investors whose shares are subject to transfer restrictions an amount sufficient to compensate them for the dilution suffered by them as a result of the above-described actions of the Company. “
Simple translation states that if they sell they will have to pay $500 million plus a difference in share price if sold within 18 months. TPG engineered this brilliantly insulating them from loss and making it a long term investment. In other words they aren’t stupid. They are in business to make money. Although many of us have our own opinions and do our own research, TPG would not have gotten involved in a firm that looked as risky as the media makes it out to be.

WM has fought tooth and nail to remain independent and try to weather this perfect storm. Based on current capital and liquidity levels and access to the federal home loans bank they have enough to emerge on the other side of this thing. Bruised, battered, beaten, and shook up? You bet but, independent and alive.

Does anyone know where the bottom of this thing is? No, they sure don’t but there are a lot of people out there that are a whole lot smarter than us that also know a whole lot more than us that look at it every day all day long. The housing market and write downs pertaining to foreclosures will inevitably decide the fate of WaMu. No one can be sure of what is to happen but all indications show that WaMu will make it through the tunnel to see the light on the other side.

So, stop with the rumor mongering. YES JPM would LOVE to buy WM but, it just isn’t going to happen by choice. The only way it will happen is if the housing market ends up even worse than it is and WaMu ends up not having access to or enough capital which isn’t likely.