L'Ombre de l'Olivier

The Shadow of the Olive Tree

being the maunderings of an Englishman on the Côte d'Azur

17 March 2008 Blog Home : March 2008 : Permalink

Buying Cheap?

JP Morgan bought Bear Stearns for $2 a share more or less, well under 5% of its value a month or two ago and despite an analyst in the article linked to above saying that he thought Bear Stearns easily could justify a value of $40 / share. It may be interesting to compare Bear Stearns with Britain's Northern Rock which HMG decided to nationalise completely instead of sell off cheap. Both got into trouble by essentially finding that no other bank would lend money to them and neither has been allowed to fail catastrophically. The same may not be true for all entities however, the CCC hedge fund seems to be bust and while the Carlyle Group says it will "stand by" the investors in its hedge fund I don't think that means it will be baling them out. One suspects that, just like the dot bomb smash in 2000/2001, a large amount of paper/electronic money is going to dissappear into thin air again.

On the other hand it isn't just high finance where the bargains can be found. Over on this side of the pond Air France agreed to buy Alitalia after an auction to which no one showed up:

Troubled Italian carrier Alitalia has agreed to be bought by rival Air France for a cut-price 138m euros(£106m:$215m) in a move to save the state airline.

The Italian government, which holds 49.9% of Alitalia, failed to sell the company by auction in 2007.

Alitalia has lost money for five years, and has struggled to clinch a buyout.

Air France-KLM offered one share per 160 Alitalia shares, valuing Alitalia at a low-value 0.10 euros a share.

That is a 81% reduction on Alitalia's current share price.

So not quite as much of a bargain as JP Morgan, and given that Alitalia needs to fire about 50% of its bolshy workforce definitely a challenge on the merger front too - JPM won't have much problem firing people it doesn't see a need for at Bear Stearns. However it has to be said that having one not terribly successful, semi-state owned airline buying another even less successful state owned airline doesn't sound like a recipe for success. Just possibly current Alitalia shareholders are getting as good an offer as they will ever get because I suspect that Alitalia, like Bear Stearns, doesn't actually count as a going concern these days.