So, $2 a share for Bear Sterns (BSC). Jamie Dimon just pulled off potentially the bargain of the decade at JP Morgan (JPM). Let’s look….
JPM is paying $236 million (in stock) for Bear. The CFO at Bear estimated its book value at $80 a share just a week ago.
Let’s assume he is way off. The fun thing about the market now is that we can assume anything we want. Since there is no market for the instruments being written off, we are in a “your guess is as good as mine” scenario.
Assume he was off and it was $40 a share. Eventually, the instruments will trade at a value and the Bear Stern portion of JPM will trade at its book value. That being said, the value of JPM’s investment in Bear is now worth $4.7 billion. That alone would add almost 4% to the value of JPM. That is dramatic when you consider JPM is paying .1% (that is one tenth of one percent) of its value for Bear. It is pocket change.
If he is right, and the true book value is $80, the value of Bear to JPM is now $9.4 billion or an additional 7.6% of JPM’s value. The same current risk applies.
The true value is somewhere in the middle. In an orderly sale, estimates today are running a value of Bear of about $7 billion. Look at it this way, the building that Bear Sterns owns and houses its operations is valued at over $1 billion. JPM essentially got all of Bears Sterns operations and assets for the cost of less than 1/3 of the building they sit in… stunning
No matter how you slice this, JPM shareholders ought to consider dropping Chase from the name and adding Dimon.
One potential issue… Bear employees own over 30% of the companies stock. Investor Joe Lewis has lost $1 billion on his investment and owns another 9.4%. Will the deal get approved by shareholders? Bear employees are understandable very angry, let not assume this is a done deal. At this price, how many other bidder might appear? Even at $10 a share, it is a steal…
Disclosure (“none” means no position):None
2 replies on “JP Morgan’s Bargain….”
I linked to this post from Bear Stearns: The Facts, Some Opinion, and Who Stands to Lose the Most.
What do you think the Intrinsic Value of Bear Stearns is? OR JPM for that matter.
I think right now, it is impossible to tell..
without a legitimate market for many of the securities, an honest valuation cannot be done..
that being said, i if we just take into account the overwhelming majorities are performing, then the current devaluation of them is unwarranted..
if that is true, then a real valuation of Bear must be pre-writedown, minus what has been disposed of.
i think even if JPM got this at $20 it was a steal.. at $2, history may judge this as the deal of the century….