No. of Recommendations: 11
The closing price of BAM, now BN, on 12/9/22 was $45.13/share, for a market cap of $74.0B. That's still lower than the combined market cap of BN and BAM at the open on 12/12/22 of $59.3B + $38.4B = $97.7B.
If you're taking those market cap figures from Yahoo, or any other free data provider, I wouldn't rely on them. The name change has done a number on automatic data feeds. Yahoo shows BAM, the new sub, with 164b shares outstanding, which is what the old BAM, the new BN, had. Issuing one new BAM share for every four old BAM (new BN) shares, should result in a share count roughly one-fourth that size for the new sub. The share price would have to be about $96 to achieve a value of $38.4b. I'm going to await the first quarterly reports post-spin to develop a baseline of the new numbers.
In any case, before the markets went to hell, when the old BAM touched $60, its market cap approached $100b. Mr. Market struggled to value the combination of asset-heavy and asset-light businesses that made up the mother ship. Asking it to separate the fee business, assign to it a new multiple, then subtract 25% of it from the mother ship, which itself now deserves some synthesis of the old and new multiples, owning as it does 75% of the new sub . . . well, it's a lot. The immediate reaction was apparently to treat the new BAM like its idol, BX, which is down roughly 20% in a month, owing to the new conventional wisdom that private equity shops will be victims of a the coming higher interest-rate environment.
I am not so sure this is true and think the current prices of BX and BAM offer interesting opportunities. If central bank interest rates peak where currently projected, and then retreat in response to a recession next year, which seems as likely a scenario as any at present, alternative asset returns will continue to be preferable to fixed income yields for quite some time, although bonds purchased in the relatively brief window at the peak will offer a nice combination of appreciation and yield. The rate of capital inflows might slow, but the recent baseline is a gusher so that might not be too bad.
The spin was intended to earn the fee business a multiple similar to Blackstone's, which Brookfield hopes would then be reverse-engineered into the valuation of the mother ship, which still holds 75% of that asset-light business. But the present moment, in which central bank interest rates have increased with a rapidity not seen in 40 years, is probably not the optimal moment to test it. I suspect it will be a year, at least, before the multiples are sorted out and the effects of the spin can be objectively evaluated.
