It’s been bothering me for some time — the fact that Lehman failed and Merrill was taken out at a deal time value that was a significant premium to both book value and the prevailing price of its shares in the market. It seems rather unfair.
You’ve got Lehman on the one side, swept into the dustbin and Merill on the other with shareholders getting tens of billions of dollars. Then we find out that Barclays sweeps in and gets Lehman’s core assets for a measly $2 billion.
It was the same cast of characters who were bidding for Lehman before they went down that would have been potential suitors for Merrill. In fact, Bank of America rejected Lehman in order to buy Merrill.
Was Dick Fuld asking for too much money? Somehow, I don’t think that’s the answer. After all, Barclays took the core assets down for $1.75 billion. Somehow, I think the answer lies in what bankers saw that we have not seen: Lehman’s books. I reckon that bankers were shocked when they got a peek under the Lehman kimono. What they saw frightened them so much they went running to Mama Fed for help.
But, the Fed wasn’t offering any help, so Lehman Brothers failed. It is only a matter of time before we find out what Lehman actually has on its books. My guess is the situation there is a lot worse than we realized.