It's A Deal

March 17, 2008

This Is No Bear Market

“Do I hear $2.50 a share?”

On the heels of Sunday night’s remarkable news that Bear Stearns was finished, it struck me that this deal should be far from done. Not because there’s virtually no reason that existing Bear holders should vote for it, but because it seems to me that the bidding should just be beginning.

Think about it: the biggest issue facing a would-be acquirer seems to have been addressed by the Fed. The central bank has agreed to put up $30 billion to back up Bear’s least-liquid holdings. And if JPMorgan got assurances that it wasn’t going to be on the hook for much of the garbage, why couldn’t another buyer, who was willing to offer a few million more, get the same assurances?

Would it not be worth it for another big name to toss its hat into the ring? At the end of the day we’re only talking $300 million or so; the bargain on Bear’s real estate alone makes it a steal, even if another buyer wants to keep bidding the price up by a couple hundred million.

Now, there are some holes in this theory. One is that analysts are saying JPMorgan is viewing its actual bid closer to $6 billion, factoring likely litigation (we just got the first class-action filing), severance, and deleveraging Bear’s balance sheet. And there's no guarantee the same deal would apply now. And by all accounts Bear and JPMorgan are a good fit.

But that doesn’t mean for the right price (and anything near the current level seems to fit that definition) that someone else couldn’t step in. He no doubt has an axe to grind, having bought a boatload of shares not long ago at better than $100 a pop, but one of the bank’s largest holders, Joseph Lewis, just called the offer “derisory.” And some investors appear to agree; Bear shares are changing hands at $4.40 right now, double the offer on the table.

Besides, the Fed‘s decision to cut rates from the discount window, and extend the terms, reportedly has left Lehman CEO Dick Fuld saying the liquidity issue is now “off the table” for the entire industry. Alright, it's back to business as usual...

Alas, shares of Lehman are down 35% Monday.