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.
Disclosure: Long NCC