Bear bid a "high risk" deal: Punk Ziegel's Bove
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Tue, 25 Mar 2008 10:39:06 GMT |
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(Reuters) - JPMorgan Chase & Co's revised takeover offer for Bear Stearns Cos Inc is a "high risk transaction," Punk Ziegel analyst Richard Bove said on Tuesday, a day after JPMorgan boosted its all-stock offer for Bear five-fold to about $10 a share."What is most disturbing about this deal is that it uses a great deal of Morgan capital to buy a company that is losing market share, in a series of businesses that are declining in size, with a top management team that is best described as sclerotic," Bove wrote in a note to clients."Every aspect of this transaction is likely to be tested in the courts with JPMorgan paying the bill all the way. This is not a lay-up at all."On Monday, JPMorgan, facing pressure from disgruntled Bear shareholders, raised its offer for Bear from its original bid of $2 per share. The new offer valued the 85-year-old Wall Street investment bank at about $2.1 billion, compared with $236 million under the original deal.Additionally, JPMorgan would also be on the hook for the first $1 billion in losses stemming from Bear's less liquid assets, and would set aside $6 billion to cover severance, litigation and other transaction-related costs."Investors believe that JPMorgan is underbidding for Bear Stearns... I do not," Bove said. "Bear Stearns is a deeply troubled company which would have no value if the Federal Reserve had not stepped in to bail it out."Bear's prime brokerage business is "the key jewel," which JPMorgan does not have and which it needs, he added."However, it is my understanding that this business' best customers have long since decamped to Goldman Sachs Group Inc . JPMorgan is going to have to work hard to get these people back," Bove said.Earlier, Keefe, Bruyette and Woods had said it expects the deal to go through at the revised terms and raised its price target on Bear to the expected acquisition price of $10 per share.The new terms are likely to result in the deal closing sooner than it would have under the previous terms, KBW said. It has a "market perform" rating on Bear Stearns.Shares of Bear Stearns closed at $11.25 Monday on the New York Stock Exchange. JPMorgan's shares closed at $46.55.(Reporting by Tenzin Pema in Bangalore; Editing by Himani Sarkar)
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