I have just finished listening to JPMorgan’s (JPM) conference call where the bank announced that it is acquiring Bear Stearns (BSC) for “$2.00 per share.” In a press release on JPM’s website as well as on the call, JPM “will exchange 0.05473 shares of JPMorgan Chase common stock per one share of Bear Stearns stock.” JPM stated that “The Federal Reserve, the Office of the Comptroller of the Currency [OCC] and other federal agencies have given all necessary approvals.”
JPM got a bit testy during the Q&A session of the call when questioned about shareholders' having to approve the deal. JPM emphatically stated that they have “every expectation that BSC shareholders will approve,” and that they would “be surprised” if BSC shareholders didn’t. And in the unlikely event that shareholders don’t approve on the first vote, JPM will continue voting rounds for up to a period of 12 months.
When questioned by a Merrill Lynch (MER) analyst how Bear went from a book value around $84/share to an offer of $2, JPM cited it was “their duty to protect their shareholders” with a “cushion.” Excuse me, but it is the Federal Reserve at this point that is providing a FREE CUSHION of up to $30 billion in the form of a special nonrecourse lending facility. JPM is taking on ZERO risk here, so then JPM focuses on the estimated $5-6 billion cost to complete the transaction (which they want to do in 90 days).
When asked by the MER analyst about Bear’s books, JPM said Bear has a “very, very good strong business.” JPM was “pleasantly surprised to see that it was a very well run, good risk operation.” JPM mentioned several times that the deal “makes a lot of strategic sense” and is “compelling.” A Credit Suisse (CS) analyst asked if Bear owned their prime midtown Manhattan building, which JPM confirmed they did. (The building is estimated to be worth $1.2 billion.)
And JPM wants Wall Street to know that “having taken Bear out of the problem category, and the strong action of the Fed, we expect the market to behave quite differently on Monday than last Thursday and Friday.”
This is a bogus deal conjured up to buy time to soothe the markets. Go to Yahoo! Finance and check out the list of top holders for Bear Stearns. Morgan Stanley (MS) owns 5.37%, Legg Mason (LM) 4.84%, Barclays (BCS) 3.60%. In short, a lot of major hedgies and mutual funds have got a piece of Bear.
An individual investor on the call asked JPM how this deal benefits shareholders versus Bear going into liquidation. JPM said he would “have to ask Bear that question.” (Translation: the Fed doesn’t want that to happen; it fears a panic situation would ensue.) Executives from Bear showed their lack of enthusiasm and embarrassment by not participating in the call. JPM is stating that Bear’s Board of Directors approved the transaction. It would seem to me that Bear is just buying time to get their act together or get a foreign suitor “Bear-ing” Euros.
Disclosure: The author owns BSC shares and will vote "No" on the JPM deal.
