Bear Stearns: Takeover Speculation Returns

I’m beginning to understand why Bear Stearns CEO Jimmy Cayne was

hesitant to take over the prime-brokerage duties for his firm’s own hedge funds:

yet again, Bear is being talked about as a takeover

candidate. The latest pundit to prognosticate about a Bear acquisition is

Merrill Lynch bank analyst Guy Moszkowski, who said on Friday,

according to DealBook, "that if the investment bank loses a lot of money

in the rescue effort, it could become vulnerable to a takeover attempt".

Of course, Moszkowski is very well insulated from being wrong here by that

whopping great "if". It’s worth remembering that so far Bear hasn’t

lost anything at all, and that in fact there’s a decent chance it might end

up making a fair amount of money on the deal. Bear is still refusing to bail

out the more highly levered of the two troubled funds, which also puts it in

a safer position.

That said, Bear is always a takeover candidate, if only because it’s much smaller

than rivals such as Lehman Brothers or Moszkowski’s own Merrill Lynch. It’s

trading at a price-to-book ratio of 1.6, which seems pretty low compared to

Merrill’s 2.0, Lehman’s 2.2, Morgan Stanley’s 2.4, and Goldman Sachs’s 2.7.

And there’s always some big European universal bank which wants to expand its

investment-banking footprint in the US. 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.

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