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PrintMarch 24, 2008
JP Morgan to Raise Bear Stearns Offer
In an effort to head off suits from angry shareholders, JP Morgan is raising its bid for the belaugured investment house Bear Stearns by a factor of 5:
The sweetened offer is intended to win over stockholders who vowed to fight the original fire-sale deal, struck only a week ago at the behest of the Federal Reserve and Treasury Department.The Friday before the Fed intervened to stabilize the market, Bear Stearns stock closed at around 30. The stock was trading at 67 as recently as two weeks ago and in the 170's last year.
Under the terms being discussed, JPMorgan would pay $10 a share in stock for Bear, up from its initial offer of $2 a share — a figure that represented a mere one-fifteenth of Bear’s going market price. The Fed, which must approve any new deal, was balking at the new offer price on Sunday night after several days of frantic, secret negotiations, these people said.
As a result, it was still possible the renegotiated deal might be postponed or collapse entirely, said these people, who were granted anonymity because of their confidentiality agreements.
If the Fed were to reject the new proposal, it could set off a furor among shareholders of both firms that the government was preventing them from making a fair deal
One can certainly understand the anger of shareholders who were left with virtually worthless securities.
It is still probable that there will be some legal action against JP Morgan. Bear Stearns employees - many of whom lost their life savings as a result of the Fed deal - are trying to rally support among shareholders to oppose the deal.
The Fed may not accept this new offer because they believe it would set a bad example for taxpayers bailing out shareholders. One might question while it is perfectly alright to bail out companies for bad decisions but when it comes to shareholders some "bad example" would be set.
Meanwhile, some of Bears largest shareholders are not taking the sale lying down. They vow to block the sale, hoping to take the company into bankruptcy where these larger stockholders are among the first creditors in line to get a piece of Bears' assets. They feel that they could get more than $2 a share offered by JP Morgan.
The momentum for this deal seems to have slowed but it still appears to be on track. If it were to fall through, crisis would once again rear its head and Fed intervention would probably be in the offing.
