Even if their plan is a long shot, you could lose a lot of money betting against furious billionaires hellbent on protecting their assets.
I don't see why or how you could lose a lot of money betting on Bear stock going down; after all, betting against these furious billionaires has been stunningly successful up until now.
Ledbetter seems to think that Lewis can find common cause with Bear employees, who own 30% of the stock. But those employees have one overriding concern right now, and that's their jobs. Jamie Dimon is offering cash and stock to Bear employees if they support the takeover: that's an offer which isn't being extended to Joe Lewis, but is pretty attractive when the alternative is hoping that a bankruptcy will end up with some residual value for shareholders. Even employees who get fired will make out better than Lewis:
Bear Stearns employees not offered a job by JPMorgan will receive cash payouts of 25 percent to 35 percent of their 2006 compensation provided they stay until the deal is completed, Dimon said, according to the two people. JPMorgan hasn't decided how many employees it will retain.
So it's far from obvious that Lewis has Bear's employees on his side, even putting aside the fact that Bear's executives, who own extremely large chunks of stock, will also receive hugely valuable indemnification against lawsuits if the acquisition goes through.
Ledbetter also seems to think that there's some small hope of shareholders getting money at the end of a bankruptcy proceeding:
My understanding is that, in order to shun the JPMorgan offer, the company would have to declare bankruptcy, and in bankruptcy the shareholders have to get in line behind other creditors, thus by no means guaranteeing a better outcome than $2 a share.
By no means guaranteeing a better outcome? Bankruptcy guarantees a worse outcome. If Bear goes into bankruptcy, there wouldn't be some nice indefinite Chapter 11 proceeding where the company can be operated as a going concern and eventually sold for a large sum of money. No, broker-dealers have to file for Chapter 7 liquidation, where Bear's assets would be dumped unceremoniously onto a market which clearly has no capacity to buy them all. That's what the Fed was trying to avoid, and that's why bankruptcy would result in no money at all for shareholders. (Matt Miller and John Blakeley explained this in the Deal on Monday, in an article which unfortunately isn't online.)
The best hope for Lewis is not bankruptcy, but rather that he can somehow put together a credible better offer for Bear himself - one which would be accepted by a majority of shareholders even if JP Morgan exercises its option to buy 20% of the company at $2 a share, and one which would somehow manage to get the blessing of the Fed, which is solidly in Jamie Dimon's camp. Even Ledbetter doesn't see that happening; for all the gory details of why it won't happen, see Heidi Moore.
I see only one conceivable way in which Bear gets taken over for much more than $2 a share (or a bit more than that now, as the offer is in stock, and JP Morgan's stock has risen since the offer was made). And that's if Jamie Dimon unilaterally decides to raise his offer, deciding that spending a couple of hundred million dollars more on the acquisition is worth it if it avoids months of legal headaches. And Dimon's said quite explicitly that he won't do that. In this deal, Dimon's the winner, and Lewis is the loser. If you want to bet on the loser, feel free. But don't expect to make any money doing so.
This article has 7 comments:
Shareholders will vote no on this deal and Bear will be at $30 by mid summer.
Enjoy!!
Without that knowledge we can may be say: Wow in fact it is 2000 US$ or (more likely) minus 2000 US$ a share.
Nobody explains why the Bear bank needed positions like that...
Lawyers should sue Alan for complete sell out.
Joe Lewis should fight for bankruptcy - what is there to lose. What is the difference between $ 2 and 0 - 98% loss vs. 100% loss.
This is bailout of JPM and other bond holders - nobody is characterizing it that way. JPM is being handed Bear on a platter, Fed is financing and guaranteeing the deal.
1. If JPMorgan is Bear Stearns' biggest counterparty, wouldn't it be forced to buy Bear out at any given price? If not JPM will go bankrupt = either a bullet in the stomach or one in the heart.
2. If JPM may fail because of the BSC fiasco, wouldn't GS, MS etc want to jump in and acquire JPM at US$2 a share? Otherwise, as JPM's counterparty they may also face bankruptcy.
3. What is preventing investment banks from going through waves of mega-mergers like automobiles (3 left) and aerospace (1 left) industries?
4. In case i-banks are nationalised and therefore tied to the tighest strait-jackets in terms of leverage, would there be any point at all in their indepedent existence from commercial banks?
5. How is any kind of risk management effective, when on 30 times leverage, the markets you deal in move more than 3.33% a day?