Things keep getting uglier with this Bear Stearns story. On Friday, shortly after Bear announced that it would bail-out the less levered of its two troubled hedge funds, veteran Merill Lynch analyst Guy Moszkowkski announced that the bank was a potential takeover target.
“If the firm is not able to resolve its position without a meaningful loss, we think likelihood of a sale rises materially,” Moszkowski wrote.
Of course, a note of caution is probably in order. Despite the troubles at Bear, Moszkowski maintains a “buy” rating on its stock, which has recently taken a battering. When analysts have to justify a rating based on its takeover potential rather than its fundamentals, it’s a often a sign of desperation.
But this morning the theory got a boost from a Wall Street Journal story with the clever title “Bear’s Stock Is Acting Like Its Name.” The Journal noted Bear’s shares fell 1.4% on Friday when the bailout of the hedge fund was announced. On Monday they dropped another 3.2%. Overall, Bear’s stock is down 14.5% for the year, trading now at just 139.10.
“Bolstering this theory is the firm’s price-to-book value of 1.3, a level significantly lower than peers like Lehman Brothers Holdings Inc. and Merrill, which trade at 2.2 and 2, respectively. Firms with low multiples often make attractive takeover targets,” the Journal’s Kate Kelly and Greg Zuckerman wrote.
Mozkowski thinks a buyer would pay at least $185 a share—twice its book value.
Others are also backing Mozkowski’s buyout theory. “Their fancy headquarters in midtown are worth something. More than their formerly good name, which is now synonymous with subprime slime,” the blog Under the Counter writes.
Felix Salmon, who writes the Market Movers blog for Portfolio magazine’s website, is skeptical. “But color me unconvinced for the time being: if Bear has remained independent this long, I doubt a dodgy hedge fund or two will constitute its undoing,” he writes.
One person who has spoken to Bear Stearns chief James Cayne recently voiced skepticism at the talk of a takeover. “You have to be completely out to lunch to think Jimmy Cayne’s going to sell the company in a distressed situation. This guy believes in Bear Stearns. He’s not selling and you’re not getting it without his say so.”
Bear’s Stock Is Acting Like Its Name [Wall Street Journal]
Merrill’s Guy: Step Up Bear [UndertheCounter]
Bear Stearns: Takeover Speculation Returns [Market Movers]
Archive for June 2007
Brian Koppelman and David Levien, the duo that brought us “Ocean’s 13” and “Rounders” have signed on to write “Alpha Cats,” HBO’s new show about hedge funds. So “AC” will either be a good series with frequent guest appearances by Matt Damon or a really boring one that looks and sounds exactly like its predecessors (though blissfully Julia Roberts-free) with frequent guest appearances by Matt Damon. Doug Ellin, executive producer, said he’s aiming for the show to be out next summer with the fifth season of “Entourage,” though “nothing is set in stone,” so don’t cancel your HBO just yet, even if we’re all on the same page vis-à-vis “Entourage” being off to a horrible start (save for the Anthony Michael Hall balcony brilliance).
‘Entourage’ Producers Hire ‘Ocean’s 13′ Writers for HBO Hedge Fund Series [TV Week]
In May, hedge funds had their best month in over a year, according to the latest monthly report from Eurekahedge. The Eurekahede Hedge Fund Index had a return of 2.4 percent, the strongest since January of 2006. North American fund managers saw a slightly lower gain of 2.1%. The real strength, however came from emerging markets, where the index had gains of 4.4%.
In terms of strategy, long-and-short equity funds and event-driven funds were the best performing, up 2.9% and 2.1% on average. Of course, both underperformed the unhedged strategy of being long the S&P 500, which saw a gain of 3% in May. And when you consider the fee differential between hedge funds and index funds, it’s not contest at all.
May 2007 Hedge Fund Performance Commentary [EurekaHedge: free registration required]
Hedge funds: how they did in May [FT Alphaville]
S&P 500 May Winners & Losers [Forbes.com]
$$$ Blackstone = one of the year’s worst IPOs [MarketBeat]
$$$ Last Schwarzman reference (today). [Long or Short Capital]
$$$ Greenspan Comes Out Of Retirement For One More Interest Rate Hike [The Onion via CWS]
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Dow
Brinksmanship In News Corp’s Talks With Dow Jones
Also, The New York Times Has Mixed Feelings For Murdoch
By Dealbreaker 
The New York Times published its 3800-word investigation of Rupert Murdoch’s NewsCorp today, but it doesn’t contain any of the dealbreaking revelations we anticipated. In the “Murdochracy,” the Times reports, Murdoch avoids government regulation and generally gets what he wants through the potent cocktail of intimidation, lucrative private contracts for elected officials, campaign contributions and enormous lobbying budgets.
We remain convinced that the Times’ business section would love to see the NewsCorp.-Dow Jones deal go through, if only to watch the Wall Street Journal tabloidicized. Inset into the indignant larger story by the news department, business section reporters Richard Siklos and Andrew Ross Sorkin have a short piece reporting that, after a tempestuous weekend, the Dow Jones deal is closer to realization than ever before. The news section seems to think Murdoch is a manipulative, dangerous man while the business section just likes watching their rivals at the Journal sweat.
Yesterday, Murdoch drafted a letter withdrawing NewsCorp from negotiations after he found the Dow Jones proposal to ensure the Journal’s editorial independence “insulting,” the Journal reported. The letter was never sent and talks returned to normal late last night. Even if Dow Jones and NewsCorp can agree on the governance of the Journal, the Bancrofts still need to settle on a price, meaning these negotiations could go push into July. Bankers we spoke to said it was unlikely that Murdoch would increase his offer.
We’re dialing the Murdoch Meter back five points after the tumultuous weekend.
Murdoch Reaches Out for Even More [New York Times]
Dow Jones Deal Talks Intensify [Wall Street Journal]
The arrival of summer weather in NYC had a lot of people heading for the beach this weekend. But before spending time courting cancer in the summer sun, we always stop off at the bookstore to pick up a book to break-up the time between smoking cigarettes and drinking beer. It helps if you can get your pals to read the same book so that when you do feel the need to talk to each other you have something to discuss.
The first book on DealBreaker’s summer reading list is Nassim Nicholas Taleb’s The Black Swan. We read his previous book, Fooled by Randomness, with a combination of fascination, wonder and annoyance. So we’re looking forward to cracking the spine on his new work.
We hope you’ll join us. We’re going to do this book club style. Our Summer Reading List items will be done as a conversation between DealBreaker writers, with commenters joining in below the post. We may even have a few guest posts by readers, commenters and others who decide to join us. (If you want to be one of the first readers to join in as a guest writer for the Reading List, email us at tips@dealbreaker.com)
The discussion begins tomorrow so be sure to pick up your copy today.
The Securities & Exchange Commission has opened up a preliminary inquiry into the near collapse of a highly levered hedge fund it managed, Business Week’s Matthew Goldstein is reporting. Apparently regulators would like to know how the investment firm went from telling investors that April’s losses were below 7% only to restate them at 18.97%.
This morning DealBreaker reported that the headline making troubles of two Bear Stearns funds were attracting the attention of two Capitol Hill lawmakers.
Bear’s Big Loss Arouses SEC Interest [BusinessWeek]
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