Street Capitalist: Event Driven Value Investments

Today a rumor circulated that Bear Stearns is attempting to sell as much as a 20% stake in the company to private investors. Such a move would be beneficial as Bear navigates through some tough waters while facing mounting criticism by its investors.

So who are the possible investors?

One number being circulated is Warren Buffett. I’m not buying it. The reason being, Buffett already had a walk down Wall Street when he worked on fixing Salomon Brothers and I just don’t know if he’d want to do that again. Granted, the problems at Bear Stearns pale in comparison those of Salomon’s. An investment on Buffett’s part would signify a vote of confidence for James Cayne. Buffett has mentioned that Berkshire has its wallets open and is eagerly looking for some businesses to acquire.

Bank of America and Wachovia are also names being circulated. These banks could definitely benefit from some synergies they would gain from Bear’s fixed income groups, and many people have thought that Bear might be a possible takeover target at the moment. A small 20% stake could be the start of something larger.

Lastly there’s talk of Citic Group or China Construction Bank. This kind of talk has circulated for a while as Bear sought to sell a stake in itself in order to gain access to China and market its investment banking services. Since the Chinese investment talk lead no where in the past, I don’t see why it should now now, especially when the firm’s business is in trouble.

So who is it?

One group that I haven’t seen mentioned are Gulf-state sovereign wealth funds. The reason I bring this up is because Dubai has talked about its wish to create an international investment bank, a stake in Bear Stearns could be the ticket to that. Petrodollars are pouring into these countries and they’ve already waged wars over foreign stock exchanges. They seem intent on raising their profile through acquisitions in the financial services industry, and Bear could be their ticket.

Overall though, these could just be rumors. James Cayne’s friend, billionaire Joseph Lewis already purchased a sizable stake not too long ago. Cayne himself holds a large stake in the company, solidifying his power within the company and allowing him to make whatever changes he needs to make in order to fix Bear Stears. The stock is up 7.71%, trading at $123.05, down from a 52-week-high of $172.61. Any kind of acqusition would certainly make Bear Stearns worth studying as a long term investment.