Hung Bridges & The Deathly Hallows

Goldman Sachs was feeling its pop lit oats today, based on some new client research that includes gems like:

But like J.K. Rowling’s protagonists, the battle between investor sentiment and company fundamental will continue until the demise of one of the participants.

And…

It is impossible even for a wizard like Harry Potter to reconcile two facts: Stocks cannot BOTH melt down because the market fears financial institutions will have to fund and hold levered loan commitments while at the same time shares of target companies sell off on the belief the same transactions will not close.

Surrounding such pablum was the actual advice that Goldman Sachs clients are paying for… or that peHUB readers are about to get for free: Buy stock in the 22 companies that are the targets of pending take-private transactions, for what Goldman says will represent a 36% average annualized return. This would include First Data, Alliance Data, TXU, etc.

Goldman does not make predictions of future buyout bullishness – although it does suggest that company fundamentals are far stronger than they are getting credit for – but instead focuses on the likelihood that the aforementioned deals will get done. They say the market has assigned a 62% probably that each of the 22 take-privates will get done, but Goldman puts the figure higher.

It is worth noting, however, that Goldman’s logic is a bit too Muggle. What if the 22 companies are losing stock value not as part of overall market jitters, but specifically because investors feel those deals won’t get done. Couldn’t the banks bail on the leveraged loans, thus sparking almost all stocks except the deal-inflated 22?

To recap: I generally agree with Goldman, and think most of the 22 will be done. But I don’t quite see the current situation as a contradiction.