Even though I pointed out that Bear might be on a trajectory to losing its independence, I also expressed skepticism that anyone would be so daft as to want to buy the firm or worse, be a minority shareholder. It’s one thing to take a position as a trade, which is apparently the logic of British born billionaire Joe Lewis, who recently acquired a 7% stake, and quite another to make a long-term commitment.
But the New York Times, followed by Bloomberg and the Wall Street Journal all report that investors ranging from Warren Buffet to Chinese banks Citic Group and the China Construction Bank, Wachovia and Bank of America are circling Bear Stearns. Apparently a 20% stake in on offer.
But being a strategic investor has certain minuses. Yes, you get a board seat, which means you have inside info. And you can almost assuredly structure your deal to get a preferred return. But your position as an insider, plus the impact on the stock of any selling, makes it difficult to exit.
And I see Bear as too much a cousin to Bankers Trust for it to be a good deal. Charles Sanford was able to exercise some control over the firm’s traders, but when he was ousted in the wake of the Gibsons Gretings/Proctor & Gamble derivatives sales scandals, the inmates were in charge, much to the firm’s detriment.
Bear is a tough, sharp elbowed firm. Any financial institution investing in the hope of achieving synergies (code for a staged takeover on the cheap) is deranged. And while the Bear franchise has value, and the firm is cheap on a current basis, Wall Street is on a down cycle from a cyclical peak. A bargain now may not look like much of a deal in six months.
When Sallie Krawcheck was an analyst covering Wall Street at Sanford Bernstein, I saw her make a presentation. In passing, she mentioned that investment banks treated their employees well at the expense of share price performance. There’s no reason to think things have changed much from those days.
With Bear this visibly in play, for the firm not to conclude a deal would say that investors didn’t like what they saw under the hood. So the pressure on Bear to close a transaction is high indeed.