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March 31, 2008

Lehman to offer $3 billion convertible preferred shares

Lehman decided to raise some cash by issuing $3 billion in convertible preferred shares.  In an interview today: 

"We still maintain that we don't need capital, but we've realized that perception is the dominant issue in today's markets," the chief financial officer, Erin Callan, said in an interview. "This is an endorsement of our balance sheet by investors."

Lehman did not provide terms of the sale, which apparently is being priced tonight.  Price talk is for an interest rate of 7.05 to 7.5% and that the conversion premium would be approx 30% above the current stock price.  The preferred will be noncumulative, meaning the firm can skip dividends without much penalty if it runs into trouble. Lehman said it would be the "sole book-running manager" of the offering, but did not say if there was a syndicate behind it or if it was going to place the shares by itself, though the wording of its press release indicated the latter. 

At a minimum, I would say that this is a bit slightly alarming and should be viewed with caution by current LEH equity holders.  This, by the way, comes on the heels of Lehman saying it has plenty of liquidity - more than $90 billion of assets it holds in cash or fairly liquid assets.   

The stock sold off more than 2% after hours.  I would avoid the name at the moment and would expect to see analysts lowering EPS estimates in the near term.

March 24, 2008

JPM looks to raise BSC bid from $2 to $10.

Late tonight it has been revealed through anonymous sources that JPM and Bear are in negotiations to raise the bid price from $2 to $10 per share.  The renegotiation came about with JPM approaching BSC about upping the price on the sentiment that the deal will be rejected.  Apparently, he felt bad about the price - cognitive dissonance.

According to the New York Times...

"The Fed, which must approve any new deal, was balking at the new offer price on Sunday night after several days of frantic, secret negotiations, these people said. As a result, it was still possible the renegotiated deal might be postponed or collapse entirely, said these people, who were granted anonymity because of their confidentiality agreements.

If the Fed were to reject the new proposal, it could set off a furor among shareholders of both firms that the government was preventing them from making a fair deal."

In another strange twist, JPM is working the deal to ensure they can snare approx 39.5% of the outstanding shares from BSC that would give it nearly the 40% required by Delaware law to be considered the "majority".  This would give them the power to override challenges made by the largest shareholder, British billionaire financier Joe Lewis.

This comes on the heels of Mr Dimon apparently calling other Wall Street CEOs pleading with them not to hire away the BSC employees.

The drama continues....Personally, I think the deal prices goes up even more.  As I stated previously, I didn't think the deal would get done at $2.  And, honestly, I still don't think this is over yet.  In fact, if it doesn't get passed at $10 per share then is it possible that the deal falls apart completely. 

March 21, 2008

Bear mauled by JPM & Co.

The more I think about it the angrier I get (if I were a Bear Stearns shareholder).  Forced into a firesale, Bear executives sold the firm for a reported $2 per share last weekend.  And that came on the heals of Bear estimating that firm’s book value being worth at least $80 per share.  Now that’s a serious disconnect.  My first question: Mr. Dimon (JPM CEO), could you do us all a favor and reconcile the $72 difference?


My next question: why didn’t the Fed allow other firms to potentially bid for the firm.  I’m sure with all the firepower and deep pockets that Goldman has, they would have submitted an offer.  Instead they allowed JPM to do a deal with virtually no downside risk (to the extent that the Fed would allow for emergency funding) plus the option to purchase the $1.2 billion Bear building if shareholders are to vote down the deal.      


And with such a terrible offer comes a new set of problems.  The New York Times reported in Wednesday’s business edition a new showdown commencing:  a battle between bondholders and shareholders.  One side wanting the deal to go through as to secure the assets from bankruptcy proceeding (bondholders) while the other side wants to breathe life into the equity side of the balance sheet (equity holders).  All while each side trying to buy up as many shares as possible in order to increase their voting power for the upcoming shareholders meeting. 


If you can't tell, count me as one "against" the deal.  In fact, I may buy shares in the open market in the next couple of weeks to get in on the vote.


Stay tuned.

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