JPMorgan in Negotiations to Raise Bear Stearns Bid

[Earth Bound Misfit]

Source: New York Times

By ANDREW ROSS SORKIN
JPMorgan Chase was in talks on Sunday night for a deal that would quintuple its offer for Bear Stearns, the beleaguered investment bank, in an effort to pacify angry Bear shareholders, according to people involved in the negotiations.

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.

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.

In an unusual move, Bear’s board was seeking to authorize the sale of 39.5 percent of the firm to JPMorgan in an effort to move closer to majority shareholder approval. Under state law in Delaware, where the companies are incorporated, a company can sell up to 40 percent without shareholder approval.

snip

A new deal could raise even more questions about the Fed’s involvement in the negotiations. As part of the original deal, the Fed guaranteed to take on $30 billion of Bear’s most toxic assets. The central bank also directed JPMorgan to pay no more than $2 a share for Bear to assure that it would not appear that the Bear shareholders were being rescued, according to people involved in the negotiations.

snip

If the price is increased, however, some critics could have more ammunition to complain that taxpayers are helping to bail out a Wall Street firm that should be responsible for its own risky behavior. That is one reason the Fed was hesitant on Sunday night to approve the transaction at $10 a share, people briefed on the talks said.

A spokeswoman for JPMorgan declined to comment on Sunday night. A representative of Bear Stearns could not be reached.

Full story: http://www.nytimes.com/2008/03/24/business/24deal.html?_r=1&hp&oref=slogin

[edhopper]

1. I guess

the Bear stock holders think they have some leverage. They don't. If JP Morgan balks, Bear Sterns is a bankrupt company and their stock price is 0.
The Fed should make them take the deal or walk away.

[Zynx]

2. The Fed does not have the power to force shareholders to do anything.

There is little material difference between 2 and 0. It's worth a shot for shareholders. If I had held the stock from 100 to 2, I would certainly want to try to get $10.

[edhopper]

4. From what I understand about this deal

without the Fed assuming a lot of the risk ($30bil) from the bad BS junk, there is no deal. So if the Fed balks, JP won't buy at any price.
So yes, the Fed can force the BS shareholders to take the deal or nothing.

[Zynx]

5. On a practical basis, yes. They do not have the legal power. Shareholders do have

the right to vote no. Besides, by digging in their heels they got $10 anyway.

[2Design]

3. let it go bankrupt so the gamblers have to pay back their bonuses

we should not have to pay taxpayer money for a business run badly that paid out huge bonuses to their employees

[Zynx]

6. They won't have to pay back their bonuses. They keep those.

[2Design]

7. there is a time limit from when they get the bonuses to bk and they would have to pay them back n/t