Here’s a thought: At its current price, should Lehman Bros. go private?
As Lehman Brothers’ stock sunk 7% on Sept. 10, investors in some corners of Wall Street began to wonder aloud about the idea. Instead of spinning off deadbeat assets and hiving off a prized investment management business, some hedge fund managers discussed whether CEO Richard Fuld would be wiser just to give up on the public markets altogether.
The idea has been gaining traction. On July 14, Fox-Pitt Kelton Cochran Caronia Waller analyst David Trone put out a note titled “Going Private May Be the Best Course of Action.” He suggested Lehman should go private for a 25% premium. Lehman executives have mulled the possibility, company insiders say. Now, the tack appears even more tantalizing with Lehman’s stock down 41% from where it was trading when the notion was first discussed just over a month ago. Lehman’s entire market value of $5.7 billion is now a fraction of as much as $9 billion that some analysts estimate the firm could fetch for its investment management business alone.
And yet, investors who threw cold water on Fuld’s salvage plan on Wednesday, continue to believe the firm’s value is diminishing. Moody’s Investors Service analyst Blaine A. Frantz wrote that Lehman will have to complete a strategic transaction such as a sale of a majority stake in the firm or the entire company to avoid a rating downgrade. “A strategic transaction with a stronger financial partner would likely add support to the ratings,” he wrote.
So why not take Lehman out of the sights of an unappreciative public market that seems determined to write the investment bank off. Given that many public investors seem to think the firm can’t make it, “Lehman should announce they’re taking themselves private at $5 a share,” says one hedge fund manager who asks not to be named. “Then the question will no longer be if the firm will survive, but if it is a steal.”