JP Morgan Buys Bear Stearns for $2 a share

[Retire Soon]

JP Morgan Chase may raise their bid for Bear Stearns to $10 a share.

Free Preview - WSJ.com

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

Free Preview - WSJ.com

 

[Independent]

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

This is fascinating.

The Fed wanted a price that was low enough to prove that they weren't bailing out BSC's management or shareholders. Now JPM undercuts them by quintupling the offer.

The Fed also wanted to claim that the taxpayer guarantee on the $30 billion of the worst assets was the minimum needed to get JPM to do the deal. Now it looks like the Fed went too far. So the Fed should be negotiationing a reduction in the $30 billion. But that would take the share price back to $2, really ticking off BSC's shareholders.

And then, just to make this more interesting, it appears that the JPM lawyers made a big mistake in drafting the agreement - basically JPM guarantees BSC's liabilities even if the deal does't go through. Wow.

Finally, JPM's CEO seems to be breaking anti-trust or labor laws by calling his peers and trying to persuade them not to hire BSC's employees.
(I'm not a lawyer, so I don't know if he really is breaking the law, but it seems to me that his actions should be illegal.)

Memo to the Fed: When you get in between big, profit-seeking companies, and you're not simply handing money to everybody, you'd better be really sure of what you're doing.

 

[Retire Soon]

Text of Agreement

Below is a link that takes you to the language of the agreement:

Free Preview - WSJ.com

 

[FIRE'd@51]

Just to clarify the arithmetic. Under the original deal, BSC shareholders would have received 0.05473 JPM share for each BSC share. Under the revised deal, they will receive 0.21753 JPM shares. So the increase is really 0.21753/0.05473 = 3.9746, or approximately 4 times (not 5) the original amount of JPM shares. The $10 per share number includes the appreciation of JPM stock from 36.50 when the deal was first announced, to Friday's close of about 46, which would have been about a $2.50 (46 x 0.05473) per share value for BSC shareholders, even without the revised deal.

 

[al_bundy]

over the weekend one of the english newspapers had a story that bear stearns had a derivative book worth more than $13 TRILLION. JP Morgan's book is around $70 TRILLION. both are counterparties to each other on some of their derivative contracts.

Supposedly the Fed's biggest concern was the derivative impolosion of a bear stearns bankruptcy. and JP Morgan gets to not lose any money from it's derivatives with bear even if it spends $1 billion to buy the company

CDS is here and i bet in a few months we will see this again

 

[ziggy29]

Bottom fishing at $2-3 a share would have been a huge gamble that would have paid off big. Someone buying at $3 could have more than tripled their money in a week...

 

[al_bundy]

you get better odds learning to play poker and going to a casino

the people who were buying the shares did so because they had a lot of money at stake and losing money on the shares would win big in other areas

 

[FinanceDude]

Jamie Dimon is no dummy. Bottom line, he got the Fed to back him so has NO RISK to take over Bear's liabilites. Plus, he knows Bear can't raise any money in the markets or borrow any more money, so he gives them an artificially bid as a way out.

Another bank may come in to outbid JPM, but Jamie is testing the waters on that, and I am sure he is prepared to move the bid to $8-$10 a share if necessary, because all he really WANTS is the clients of Bear, and that to him is worth the money........

Here's my quote from one WEEK ago.........looks like I'm ready for Wall Street...........

 

[Spanky]

Here's my quote from one WEEK ago.........looks like I'm ready for Wall Street...........

Yes, you are ready for big time.

 

[FIRE'd@51]

Here's my quote from one WEEK ago.........looks like I'm ready for Wall Street...........

I hope you put your clients into BSC last week, just as you did with Thornburg a week or two before, when it was trading for a dollar.

 

[FinanceDude]

I hope you put your clients into BSC last week, just as you did with Thornburg a week or two before, when it was trading for a dollar.

Nope, the guys on the stock picking forum spooked me, I guess in the end I'm too wimpy to do those trades on a weekly basis...........

Time to buy some naked puts...........

 

[Retire Soon]

Here's my quote from one WEEK ago.........looks like I'm ready for Wall Street...........

Where did you buy your crystal ball? Can one be found on e-bay?

 

[FinanceDude]

Where did you buy your crystal ball? Can one be found on e-bay?

It's called luck......... I used to work at Chase, and I know a lot about Jamie Dimon and even got the chance to meet him once.

He's a shrewd guy, and would like nothing better than to bury Citi after the way Sandy Weill ousted him..............