Wall Street Values BSC at $90/share

Wait... hold on a second... Didn't Bear Stearns close at less than $5/share today, because of the pending buyout at $2/share?!?

Well, it's true that Bear's market cap at the end of today was $650 million, a horrifyingly low number based on its value of more than $20 billion less than one year ago.

But here's another way to measure the value of Bear Stearns; JPMorgan's price increase today.

JPM shares were up $3.77 today, as the company announced that it was planning to acquire BSC at $2/share. Clearly, investors think that JPM is getting a great deal, as it was one of the only financials to rally on a day when the XLF, the S&P Financial Sector ETF, fell 2%.

So, about that $90/share valuation...

JPMorgan was up $3.77 today, and there are 3.4 billion outstanding shares. Therefore, JPM's market cap increased $12.8 billion today. If you divide that $12.8 billion by Bear's 136 million outstanding shares, the value of JPM's increase translated into Bear shares would price BSC at $94/share.

Now I don't think that BSC is worth $90 per share; there are clearly issues that BSC needs to resolve. However, it does show that investors, whether they are right or wrong, value Bear at much, much more than $2 share.

So what does this mean?

I certainly don't think that the deal will close at $2 share. Today, Bear shares were changing hands at more than twice that much, implying that another party would make a higher offer or that JPM needed to raise its price. The offer does have to be approved by Bear's shareholders, and I think that the 1/3 of shares owned by company employees will lead the vote against the current buyout offer. The Fed did guarantee Bear funding for 28 days, and JPM's new backing of obligations will last a year, as the deal is pending, so Bear's shareholders have some time to think about what to do.

Now, as confidence is restored, the discount window is open, and JPM is insuring obligations, Bear might not need to sell itself at all. As I disclosed before, I own a tiny stake in Bear, and I won't be adding to it at these prices; the uncertainty just isn't worth risking more money. I paid $30 for my shares - thankfully not $50 or $100 or $150 - and I may never see that $30 price again.

Just as many negative factors came together over Long Island, forming the perfect financial storm that capsized Bear's stock, clearing skies, and promise of cheap, available, and guaranteed money may just prove to be a lifeboat for Bear shareholders. Whether it means a buyout at $10, $20, $30, or $50, or the continuation of Bear operating independently, this display of valuation by JPM's investors shows that Bear is worth a lot more than $2/share.




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JPMorgan Plunders Bear Stearns

I was absolutely shocked to see the headline; Bear Stearns bought out at $2 per share.

Prior to the news release, the low estimate of merger-price speculation was at $15/share, a discount of 50% from Friday's closing price. Many analysts expected Bear to fetch more than the $30 closing price from a potential suitor.

I do not understand how Bear's board members sold themselves out for $2/share, or $236 million. The value of their headquarters was estimated to be $12/share by Barron's - why would the board sell out to an offer so far below the value of Bear's tangible assets?

I guess there may be some ghosts on the balance sheet, but I am honestly dumbfounded by the $2 price. I wish I could say I did not own BSC (or was short), but unfortunately, I bought a few share on Friday as I thought that the buyout would be for more than peanuts.

Hopefully another bidder comes along, as it appears as though Bear is a steal at this level. Also, the deal is subject to shareholder approval; considering that employees own an estimated 1/3 of the company, I don't see all of those people losing much of their nest eggs without a fight.

In other news, the Fed also cut the discount window.

As the shockwaves from both events hit investors, futures plummeted. All major indexes are now looking to fall at least 1% tomorrow.

Who wins? It's hard to say. It looks as though shareholders of any US stock will lose tomorrow, and certainly, the evaporation of billions of dollars of BSC will not help millions of investors' portfolios.

As my title suggests, it looks like JPMorgan has stolen itself a building, a clearing house, and many other businesses for far less than the market was valuing them at. Though I'll only get one share of JPMorgan from my BSC, I may look to add more as this may provide very lucrative once cooler heads prevail.


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