Monday, March 24, 2008
JPMorgan To Raise Bear Stearns Bid To $10
Andrew Ross Sorkin, New York Times - 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...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.
Ok. Now this is getting a bit on the side of shady back room deals. Upto the initial sale, it was ok to give the Fed and JPMorgan the benefit of doubt, considering that Bear was about to go belly up. But upping the offer because shareholders are preparing for trench warfare, under the conditions outlined above raises a number of questions. First, if Bear's board is pushing through the sale of 40% of the firm, under what price is that going to be? $2 or the re-negotiated price? If its $2, then we definitely have a big problem on our hands here.
Secondly, what's the reason behind the Fed's opposition to the deal? The apparent reason is that since the Fed is taking on about $30 billion of Bear's tainted assets, they don't want to be seen as rescuing Wall Street fatcats. They would rather give the impression that they only rescued the markets from being injured by Bear's collapse, while at the same time making Bear, and its shareholders, pay the price for their mistakes. Only problem is, that's not the way a free market works. Bear Stearns shares were already on the ascent before news of this re-negotiation broke, in hopes of a better deal - Up to $7 and then back down a bit above $5. With this news, you can expect it to nearly double and hover around $9 or $10.
That's how the market works, and nothing the Fed does is going to change that. Either they should have left Bear Stearns alone, or they can now take the heat for rescuing it. They can't have it both ways. If they insist on keeping the price at $2, then another can of worms is going to be opened, regarding the nature of the arrangements between the Fed and JPMorgan. I don't think anyone wants to go there. Least of all the Fed. So here's hoping they do the right thing, take a $30 billion hit and step out of the way.
Ok. Now this is getting a bit on the side of shady back room deals. Upto the initial sale, it was ok to give the Fed and JPMorgan the benefit of doubt, considering that Bear was about to go belly up. But upping the offer because shareholders are preparing for trench warfare, under the conditions outlined above raises a number of questions. First, if Bear's board is pushing through the sale of 40% of the firm, under what price is that going to be? $2 or the re-negotiated price? If its $2, then we definitely have a big problem on our hands here.
Secondly, what's the reason behind the Fed's opposition to the deal? The apparent reason is that since the Fed is taking on about $30 billion of Bear's tainted assets, they don't want to be seen as rescuing Wall Street fatcats. They would rather give the impression that they only rescued the markets from being injured by Bear's collapse, while at the same time making Bear, and its shareholders, pay the price for their mistakes. Only problem is, that's not the way a free market works. Bear Stearns shares were already on the ascent before news of this re-negotiation broke, in hopes of a better deal - Up to $7 and then back down a bit above $5. With this news, you can expect it to nearly double and hover around $9 or $10.
That's how the market works, and nothing the Fed does is going to change that. Either they should have left Bear Stearns alone, or they can now take the heat for rescuing it. They can't have it both ways. If they insist on keeping the price at $2, then another can of worms is going to be opened, regarding the nature of the arrangements between the Fed and JPMorgan. I don't think anyone wants to go there. Least of all the Fed. So here's hoping they do the right thing, take a $30 billion hit and step out of the way.
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