One of the pet notions of M&A is that anything can be solved by price. Thus even a
garbage barge embattled institution like Lehman might could be a screaming bargain at the right level. So it’s possible that HSBC and the unnamed Chinese bank are indeed interested in Lehman, but “interested” covers a multitude of sins.
Given Lehman’s hard to assess and sizable liabilities and the uncertain outlook for the investment banking industry over the next two or three years, how can an investor be confident of his valuation? If I were running the numbers and applied a high enough discount rate to reflect the risk of an investment, I suspect I’d come up with a negative NPV.
The factor that countermands these concerns is that Lehman appears desperate to cinch a deal. Having as many balls as they do in the air on such a short time-frame (they want something wrapped up by mid-September) says they NEED to get a transaction closed. If their negotiating stance is consistent with the sense of urgency, they’ll be making concessions they would have balked at a month ago.
Europe’s biggest bank HSBC Holdings and an unidentified Chinese bank are among potential buyers of Lehman Brothers, South Korea’s Chosun Ilbo newspaper reported on Wednesday, citing a financial industry source.
HSBC and the Chinese bank, along with top U.S. hedge funds, are competing with Korea Development Bank (KDB), which has proposed to buy 25 percent stake in Lehman for 5 trillion-6 trillion won ($4.4-5.3 billion), the newspaper said.
Yves here. Wonder if “competing” is too strong a word, given that this rumor in a Korean paper appears to come from a single unnamed source.
State-owned KDB confirmed on Tuesday it was in talks with Lehman over a possible joint investment in the U.S. bank with other Korean banks, but declined to give details of its negotiations…
KDB’s proposal also includes a clause which allows the South Korean bank to increase its ownership to 40-50 percent at a later stage, according to Chosun.
Lehman prefers KDB over other contenders as KDB plans to keep its current management after an acquisition, but the bid price is considered low, the South Korean daily said.