|
Prev Blog << |
Deal of the century? |
Next Blog >> |
 |
Category: Inspirational Current Grade: A Total Views: 1321 Member Comments: 0 |
Posted on: 03/18/2008 Posted by: JohnCorey Blog Points: 1666 View all blogs >> |
A headline on the WSJ.com today shows: J.P. Morgan’s Real-Estate Deal of the Century?
JP Morgan agreed to pay close to $240 million for the Bear Stearns business (putting the business under contract). Included in the deal is a building worth $1.3-$1.4 billion with an equity of around $700 million. The building is part of the deal.
Think about it. You buy the company and you get real estate worth a lot more than the purchase price for all of the company's assets. It could be argued that they are getting the building for free if you wanted to take that view. How it gets recorded will come down to a lot of tax issues and other things.
Now, it needs to be clearly stated that JP Morgan is taking on some other obligations and risks when it buys the business. Some of the building's equity is clearly being traded to sweeten the deal for JP Morgan so they will take on the full set of risks Bear Stearns has created.
What if the Bear Stearns shareholders do not approve the deal? They have a vote and they could reject the deal. As a back up in case the deal was to fail JP Morgan received an option to buy the building for $1.1 billion. The company is under contract but if the deal fails to close JP Morgan still retains the option for the building.
Buying a company to get to the real estate is not new. Normally done by the big boys rather than residential investors. Still it helps to consider such a deal as you train your mind to be creative.
John Corey
JP Morgan agreed to pay close to $240 million for the Bear Stearns business (putting the business under contract). Included in the deal is a building worth $1.3-$1.4 billion with an equity of around $700 million. The building is part of the deal.
Think about it. You buy the company and you get real estate worth a lot more than the purchase price for all of the company's assets. It could be argued that they are getting the building for free if you wanted to take that view. How it gets recorded will come down to a lot of tax issues and other things.
Now, it needs to be clearly stated that JP Morgan is taking on some other obligations and risks when it buys the business. Some of the building's equity is clearly being traded to sweeten the deal for JP Morgan so they will take on the full set of risks Bear Stearns has created.
What if the Bear Stearns shareholders do not approve the deal? They have a vote and they could reject the deal. As a back up in case the deal was to fail JP Morgan received an option to buy the building for $1.1 billion. The company is under contract but if the deal fails to close JP Morgan still retains the option for the building.
Buying a company to get to the real estate is not new. Normally done by the big boys rather than residential investors. Still it helps to consider such a deal as you train your mind to be creative.
John Corey
