Is Bear Really Worth Only $2 Per Share?

Around the world today, people are looking at each other with a semi-glazed expression on their face, and saying something along the lines of "Dude. $2 a share." As Dennis Berman says, this is what they call on the Street "going donuts."

If you think that $2 represents a valuation for Bear Stearns, then things are very bad indeed. But in reality it doesn't: it represents a nominal price paid to Bear's shareholders in the absence of any alternative.

John Carney was uncharacteristically pessimistic this morning:

Bear Stearns was sold JP Morgan Chase for less than the value of its real estate assets. This negative valuation, in turn, suggests JP Morgan is accepting huge liabilities from Bear.

Which prompted the following IM exchange:

Felix Salmon: I think you're wrong to read much more into the negative valuation of Bear except for the fact that JPM was in a position to demand whatever it wanted, including a $2 purchase price
Felix Salmon: it's not like there was an underbidder, beggars can't be choosers
John Carney: That might be true.
John Carney: I mean, yeah. Probably anything over zero was better than nothing.
Felix Salmon: bankruptcy would have been a nightmare
John Carney: yeah. even if shareholders could have gotten more out of liquidation through bankruptcy, that would have taken a long, long time.
Felix Salmon: it's SO not about the shareholders
Felix Salmon: this is what happens when you're at the bottom of the capital structure, you get shafted in a crisis
John Carney: It's only about the shareholders to the extent that the board still has fiduciary duties to them.
Felix Salmon: That and a coupla bills will buy you a share of stock in BSC

Of course the shareholders themselves can still revolt. As Andrew Clavell says,

If you are Joe Lewis, surely you would want bankruptcy, and the optionality that thereby remains in your stock position in Bear Stearns (BSC) rather than giving up at $2...who cares about the $2?

But I have a feeling that Bear's shareholders simply don't have much power in this situation. Yes, there will be lawsuits: that's a 100% probability. But they will come later, after the acquisition has closed. Jamie Dimon seems to have played his hand very well, maybe because he was there talking to Bernanke and Geithner even as Jimmy Cayne was still playing bridge.

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