Bear Gets More
Mar 24 2008
Tape a $10 bill to the door.
J.P. Morgan Chase and Bear Stearns have agreed on a revised deal that would give Bear shareholders $10 of J.P. Morgan's stock, up from $2 in the original emergency takeover.
The revised offer will intensify the debate over the federal government's role in the rescue and may also give a boost to shareholders trying to stop the deal.
| Also on Portfolio.com: The Rescue of Bear Full coverage of the takeover. The Lawyers How the original deal got done. |
J.P. Morgan and Bear have also agreed to allow J.P. Morgan to buy 39.5 percent of Bear, a stake that should ensure that the revised deal gets approved.
"We believe the amended terms are fair to all sides and reflect the value and risks of the Bear Stearns franchise and bring more certainty for our respective shareholders, clients, and the marketplace," Jamie Dimon, chief executive of J.P. Morgan, said.
Shares of Bear surged 80 percent after the revised offer was announced, trading above $10.
At $10 per share, Bear would be valued at $1 billion. That's a quarter of what it was valued on the Friday before its rescue and less than a tenth of what it was worth last fall.
On March 14, however, Bear Stearns was facing bankruptcy. That bleak prospect and the apparent lack of any other possible bidders appeared to seal the $2-per-share offer as the only alternative for the firm.
What reopened the negotiations, reports Andrew Ross Sorkin of the New York Times, who broke news of the talks, was a mistake: a sentence in the takeover agreement that would require J.P. Morgan to guarantee Bear's trades even if shareholders voted down the deal.
"That provision could allow Bear's shareholders to seek a higher bid while still forcing J.P. Morgan to honor its guarantee," Sorkin says.
Dimon was said to be "apoplectic" when the error was discovered, according to the Times.
A renegotiated merger will put further scrutiny on the Treasury Department and the Federal Reserve, which helped secure the original deal.
Yves Smith on Naked Capitalism says that a higher offer from J.P. Morgan "makes the Fed look like a chump to have agreed to the initial backstop."
And indeed Treasury officials have been vocal in denying that the Fed action amounted to a bailout, pointing to the huge hit being taken by Bear shareholders.
Henry Blodget on Silicon Alley Insider says that "when the Fed caves" to the revised deal, "it will come under a new round of fire for saving Wall Street fat cats at the expense of the little guy. And the nation's homeowners, who are also underwater, will clamor ever louder for their own bailout. And so on..."
On CNBC this morning, the multiplatform Sorkin said that conversations with government officials indicated that they were not opposed to a renegotiated price.
But opening up the deal will certainly provide aid and comfort to big shareholders like Bahamas-based investor Joe Lewis, fund giant Legg Mason, and some Bear employees, who seem determined to stop the takeover even if it means liquidation.
This is where it gets interesting.
