Magazine article American Banker

Hospital Corp. Investment Looks like Tonic for Morgan

Magazine article American Banker

Hospital Corp. Investment Looks like Tonic for Morgan

Article excerpt

J.P. Morgan & Co. stands to make a killing on its equity investment in Hospital Corporation of America, but Morgan's own share price hardly shows it.

Analysts said the potential windfall -- which could total $425 million or more pretax, or $1.74 per share after taxes -- hasn't been factored into the blue-chip banking company's stock price, which closed Friday at $61.375.

Morgan shares rose nearly 70% during 1991, to a high of $69.50. But in this year's bank stock rally Morgan's price has subsided while others that failed to advance in 1991 have risen.

Price Jump Forecast

The hiatus could change swiftly, analysts added, if Morgan's apparent home run clears the fence.

Brown Brothers Harriman analyst Raphael Soifer calculates the $1.74 per share gain by applying an alternative minimum tax rate of 20%.

To put that in some context, Morgan's entire net income for the most recent quarter was $1.35 a share. Though the gain, if realized, would be just a one-event, it could have more long-lasting significance.

For one thing, a big score on HCA could fire investors' imagination about other potential gold mines lurking undisclosed in Morgan's portfolio of equity investments.

Other Possibilities

Morgan is known to be sitting on a 5% stake in Excel Limited, an insurance company.

In a recent report, Montgomery Securities analyst J. Richard Fredericks said the Excel stake is worth about $100 million.

Morgan was a founding investor in Excel, which was taken public last summer in a stock offering comanaged by the bank's securities subsidiary.

In the third quarter of last year, Morgan also recorded a pretax gain of $50 million from the sale of its equity stake in Centre Reinsurance Holdings Ltd.

In the case of HCA, Morgan acquired its shares in 1989, when it led a bank group that helped finance a management-led buyout of the Nashville-based company for approximately $5 billion. …

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