Brad Hintz Doesn't Buy Lehman Buyout Rumors

Posted by Bess Levin, Jul 16, 2008, 9:42am

Sanford Berstein analyst Brad Hintz dismissed the idea of Lehman management taking the firm private today, noting that it would be way too costly. "We are skeptical that this is the path that Lehman Brothers would choose to pursue," Hintz wrote, unless some sort of $2 a share situation could be worked out, he wink-winked. Journal reporter David Reilly also joined the Lehman Can't Go Private Pile-On this morning, adding that shareholders shouldn't hold their breath about a rescue from a bigger bank, though, fishily, Jamie Dimon has been letting it slip to family and friends he likes the sound of Bearpont Brothers.

Lehman management buyout unlikely [Reuters]

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Tags: Brad Hintz, Lehman Brothers

Comments

Posted by guest, Jul 16, 2008 9:48AM

Can someone explain what is "too costly" about going private at a fire sale price? Personally I don't see it nor do I see why going private would increase the bank's leverage ratio, as per Reuters article

Posted by AJ, Jul 16, 2008 10:04AM

@9:48, read David Reilly's WSJ article. Back of the envelope he estimates you'd need $25 billion of equity to maintain the current 24x leverage ratio (after some assumed writedowns). His estimates are fairly pessimistic, so maybe its $15 billion or even $5 billion. Whatever it is, its unlikely someone comes up with that much cash. If they went private, they're likely putting more leverage on the firm in order to fund going private.

Posted by guest, Jul 16, 2008 10:21AM

"too costly" because a fire sale price on common equity might still imply a very high enterprise value on a multiple of book, once their book value reflects the economic reality of their balance sheet after write-downs are complete. (remember, they sold some preferred equity in fundraising, which is senior to the common equity in the pulic market)

leverage ratio, because the new equity account in the buyout will be smaller than their current equity account. Therefore, debt / equity will be much higher.

Posted by guest, Jul 16, 2008 10:54AM

it doesn't matter much, as by the end of compensation rounds this year, dilution will cause the majority of the public shares to be owned by the employees privately.

Posted by guest, Jul 16, 2008 11:37AM

Color me confused, but if Brad Hintz is making the argument that a MBO can't be done at a 30% premium, why does he have a $45 price target on the equity?

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