Thursday, May 29, 2008
Bear Stearns Shareholders Approve JPMorgan Sale
A majority of Bear Stearns shareholders approved a buyout of the company for about $10 per share by J.P. Morgan Chase & Co. at a brief meeting of shareholders at the Bear Stearns Headquarters in midtown Manhattan. The approval was a foregone conclusion since JP Morgan had already purchased 49.5% of Bear stock. Background on the deal midwifed by the Federal Reserve here, here and here.
While the shareholder allows JP Morgan to fully integrate what remains of Bear's assets and clients, this process is bound to be a painful process, considering the headache of the distressed securities and the question of how to accomodate Bear's 7000 over employees.
And still open is the analytical question about how an 85 year old firm, the 5th biggest investment bank in the country, ended up being sold in a firesale. Last year, before the subprime mortgage crisis had taken hold, Bear Stearns shares were at a peak of about $170. The initial Fed brokered deal was for $2 per share, but when shareholders raised an outcry, JP Morgan raised the price to $10, which is now the final sale price. The most to lose in this deal were Bear Stearns senior management, including former CEO James Cayne, who not only lost millions after their stock options became worthless, but also lost control over the firm, and many will end up losing their jobs or having to follow orders from JP Morgan installed management.
There are also pending legal issues about what happened in the days preceding the sale. The SEC is set to probe Bear Stearns trading data, wherein firms like Goldman Sachs and Citadel Investment Group cut their exposure to the firm, possibly further fueling an ongoing implosion at Bear. The SEC is expected to use the data to determine whether any trading activity was improperly coordinated, constituted manipulation or otherwise contributed to Bear Stearns' collapse, according to a WSJ report.
On top of that, the deal was put together in such haste that lots of little details are bound to crop up as impediments. One headache is regarding the status of the Bear Stears Buildingm valued at over $1.1 billion. Under the terms of the deal, JP Morgan gets the building even if the deal ultimately falls through. To make matters worse, a company called 383 Madison LLC has filed suit against both Bear and JP Morgan, claiming that under a ground lease Bear used for the property, 383 Madison was supposed to be given an opportunity to buy the building if Bear ever considered selling it.
While the shareholder allows JP Morgan to fully integrate what remains of Bear's assets and clients, this process is bound to be a painful process, considering the headache of the distressed securities and the question of how to accomodate Bear's 7000 over employees.
And still open is the analytical question about how an 85 year old firm, the 5th biggest investment bank in the country, ended up being sold in a firesale. Last year, before the subprime mortgage crisis had taken hold, Bear Stearns shares were at a peak of about $170. The initial Fed brokered deal was for $2 per share, but when shareholders raised an outcry, JP Morgan raised the price to $10, which is now the final sale price. The most to lose in this deal were Bear Stearns senior management, including former CEO James Cayne, who not only lost millions after their stock options became worthless, but also lost control over the firm, and many will end up losing their jobs or having to follow orders from JP Morgan installed management.
There are also pending legal issues about what happened in the days preceding the sale. The SEC is set to probe Bear Stearns trading data, wherein firms like Goldman Sachs and Citadel Investment Group cut their exposure to the firm, possibly further fueling an ongoing implosion at Bear. The SEC is expected to use the data to determine whether any trading activity was improperly coordinated, constituted manipulation or otherwise contributed to Bear Stearns' collapse, according to a WSJ report.
On top of that, the deal was put together in such haste that lots of little details are bound to crop up as impediments. One headache is regarding the status of the Bear Stears Buildingm valued at over $1.1 billion. Under the terms of the deal, JP Morgan gets the building even if the deal ultimately falls through. To make matters worse, a company called 383 Madison LLC has filed suit against both Bear and JP Morgan, claiming that under a ground lease Bear used for the property, 383 Madison was supposed to be given an opportunity to buy the building if Bear ever considered selling it.
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