Taking Out The Bear?Hedge Fund Troubles Lead To Takeover Talk

Author:
Publish date:

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]

Related