JPMorgan in Talks to Boost Bear Bid to $10 - NY Times

JPMorgan (JPM) CEO Jamie Dimon was in talks Sunday night for a deal that would see it quintupling its original $2/share offer for Bear Stearns (BSC), the New York Times reports on its website. Dimon hopes the move will placate angry shareholders, who have vowed to fight the original deal struck a week earlier in tandem with the Fed and the Treasury.

The terms now being floated are for JPM to pay $10/share. The catch? The Fed is reportedly balking at the price, because it doesn't want the public to perceive its participation in the deal (the Fed is taking on the risk of $30B of Bear Stearns' most illiquid debt) as a bailout of over-zealous speculators.

Bear's board has also moved to authorize a 39.5% stake sale to JP Morgan, a move that would give it an upper hand in gaining majority shareholder approval. Delaware state law (both companies are incorporated in Delaware) allows companies to sell up to 40% stakes without going to the shareholders. Bear's board members own another 5%, which means it would only need 5.5% of all other shareholders to vote for the deal. It is, however, possible shareholders could seek to block the deal by claiming the proposed board move was an act of coercion.

Bear Stearns shares closed Thursday at $5.96 -- almost triple JP Morgan's original $2/share offer (which is now worth $2.50 due to gains in JPM's share price). Over the weekend, Barron's speculated a higher bid could be on the way -- perhaps even $15-20/share.

Dimon, who was at first vindictive towards opposition to the deal (he told associates he would "send Bear back into bankruptcy"), became increasingly concerned it was in jeopardy after witnessing massive backlash from Bear Stearns shareholders and employees, particularly British billionaire Joe Lewis, who sunk $1.26B into Bear over the past year. Besides offering certain key Bear employees incentives to stay on with the new company, Dimon also reached out to rival CEOs, including Morgan's (MS) John Mack and Merrill's (MER) John Thain, begging them not to recruit Bear employees during the transition period.

Comments

[mrtaxx]

If Bear is worth $10 or maybe even $20 as your article suggests, why are they selling? Why the threat of bankruptcy? Why doesn't the government back Bear with the $30 billion and let Bear stay in businesss? It looks like something crooked is going on here and the government and Bear's upper management along with it's board of director's is involved in these crooked dealings. Suprise! Suprise! Throw out the board and the upper management, get new management and let the employees who have there financial future at stake and the shareholders live on.

[User 166406]

Got the Bear Street blues. Was the precipitous decline in BSC an orderly market in such stock? Why the silence from the exchanges and SEC? Does this send the wrong message to the Street that there is always plenty of liquidity for a run on any brokerage stock? Dead cat bounce for BSC stock? Bidding up the stock would constitute an early no vote on the merger. Wake up employees and others; or is it still 'bear in the head lights'? Can Bear Street still make money on the long side?

[TM]

I believe the Fed instructed JPM to offer no more than 2/share to show this was not a bailout of BSC shareholders, so it will be interesting to see how this will play out. I imagine the Fed will not be happy about this but at the same time, there will be a lot of unhappy people if they don't agree.. Looks like a moral hazard slippery slope mess!

[mrtaxx]

I just posted a negative article, to this article, against the federal government and Bear Stearns upper management and Bears board of directors, (it was the first response to this article) and it was deleted from this site, so i'm sending a copy of my posting to this article, along with the article to the world wide news organizaions and the federal government agencies involved, etc. etc. My comment said something to the effect that since this article indicates Bear may be worth $10 or maybe even $20 a share according to this article, why the threat of bankruptcy? Why doesn't the federal government give the $30 billion backing to Bear and let Bear stay in business? Why doesn't the federal government and the board of directors of Bear back the employees (who have their future and life saving invested in Bear, and who pay their salaries) and the shareholders? Something is not right here and it appears that the federal government and Bear's upper management, along with Bear's board of directors are involved in these crooked dealings. Suprise! Suprise! Throw out Bear's upper management, get rid of the the JP morgan deal and let the employees (who have their life saving invested in Bear) and the shareholders live on.

cc - washington post. NY times, whitehouse, seekingalpha.com, congress, senator's, house of repesentatives, etc.etc.

[Eli Hoffmann]

Not sure why you're not seeing your comment as the first comment to this post, mrtaxx. It's right there at the top of the comments.

[macroguy]

If the gov't needs to back $30 billion of debt does mrtaxx think the shares have material value (other than hold-up value)? And if the shares are essentially worthless, does he dismiss the moral hazard?

[syndicat]

There was no way this deal was going to happen at $2. The shareholders had the JPM/Fed backing and 12 months to wait for
financial markets to improve. The sharehoders had the control and,
with an offer of $2, little to risk.

The final deal, if there is one, will take place in a range of $15 to $20.

[Anonymous 2]

One group of shareholders who have not been recognized are the RETIRED employees - many of whom have been 2, 3 and 4 decades long loyal hard working employees - who have over their careers earned and credited with compensation which has been deferred as part of their hard earned retirement funds and income for a period of up to ten years. With only a few exceptions, most all of these retired employees are living on what was a result of many years of loyalty and hard work and they have no responsibility for any of the current problems. Most of these employees are the worker bees of the company and did not retire with big bonuses and 401k plans. When the chose to retire, they included the expected receipt of deferred compensation as an important component of their retirement income.
In many - or most? - instances, a large portion of the deferred compensation is in the form of shares of Bear Stearns - and a relatively small portion from "cash". For a retired employee to not receive his EARNED compensation over a deferred period of time is a hardship which is not deserving of persons who have already EARNED the compensation and should be able to receive the full value (plus money market interest compounding from the date of retirement) of these funds during retirement.
I hope others who are retired employees of Bear Stearns might add their comments.