Some say you can't fight the fed, JP Morgan and the creditors of Bear Stearns, with many of the creditors seeking to acquire larger shares of BSC stock to obtain a controlling voting block so as to approve the JPM 'buyout.' In fact, Ritholz, who makes a lot of sense often, subscribes to this camp. He claims that with 75 billion in bonds depending on JP Morgan to rescue BSC, it's a near certainty that the deal will be consummated. I don't think it will be quite that easy. I certainly think anyone thinking it will be that easy underestimates the determination of Lewis, BSC employees (who control roughly 30% of BSC's float), and a variety of other funds that hold large chunks of BSC shares. If you play your cards right, and JP Morgan is thwarted in its takeover attempt, by vote or litigation, or EVEN if JP Morgan (or another firm) succeeds in taking over BSC, you can rest assured BSC shares will trade at a much, much higher price before all is said and done. This battle that we will all see unfold is going to be one for the history books. Lawsuits have already been filed, shares (and votes) are being sought, and Lewis has already filed statements basically telling JP Morgan he is ready, willing and able to work with BSC employees and other shareholders seeking to defeat any takeover attempt of BSC at any price even remotely close to the $2 as referenced and apparently blessed by the Vatican....err...I mean the Federal Reserve. And if you build a position and are right, this will be one of those 'once in a decade' opportunities to make a fortune.
Bear is dead. Even if they no longer have money problems their image is tarnished and all the top talent is leaving. The stock now represents an hollowed out shell of the old company. JPM had the most counter-party risk with Bear which makes them a natural for takeover. Why would anyone else purchase Bear when the liabilities greatly exceed assets. A lot of those liabilities I'm sure are assets on JPM's book in the form of derivatives. Bernanke would have a really tricky time resolving this credit crisis if BSC defaulted in it's 300 billion in bonds and was liquidated.
This deal doesn't get done for anywhere near $2. For all the talk of bond holders, balance sheets and the 'heft' of JP Morgan (backed by a Fed lifeline), it doesn't get done for anywhere near $2. The innuendo, opinions, analysis, arguments, dissection, scrutiny, lawsuits, and overall strategizing has begun in a fierce way - and it's only Wednesday. No way is Jamie Dimon stupid enough to try and force it through. He's far too sharp for that. He'll end up with a multi-year migraine, assuming he'd even able to be successful (a big assumption), and who-knows-how-much in additional costs. I can tell just by the tone of the conflicting opinion I've been reading (people beginning to examine the deal documents, etc.) that this is as heated as anything I've ever seen, and is likely to become much, much more antagonistic. Common sense prevails in the end. This deal either gets done for much, much more than $2, or it gets done for $0.
When the fed, treasury sec, and the president have to bail you out you are finished. The government deemed them a systemic risk and a threat to global stability.
Ritholz gas a god point on this deal as a deal contested by other IB or shareholders rather than by Bondholders: http://seekingalpha.com/article/69204-why-is-bear-stearns-stock-rallying "So as mad as the accumulation appears, it's actually quite rational -- IF YOU ARE A MAJOR BOND HOLDER, and are doing this to capture voting stock (All the other idiots buying BSC are pretty much screwed). " "Quite bluntly, it's tough to see who else can come in at any sort of premium. The structure of the JPM deal is unique -- they have the Fed's $30B backstop (no one else has that guarantee); They also are guaranteed Bear's HQ -- it's essentially a break up fee if the deal does not go through (making Bear worth $1.1B less to anyone else)."
http://www.davemanuel.com/2008/03/18/bear-stearns-lawsuits-a-trickle-will-soon-become-a-flood/ Thursday, March 20, 2008 2008-03-18 18:05:24 Bear Stearns Lawsuits: A Trickle Will Soon Become a Flood The first of many class action lawsuits against Bear Stearns has been filed this week in the United States District Court for the Southern District of New York. One of the first companies that I have seen bring a suit against Bear Stearns is Coughlin Stoia Geller Rudman & Robbins LLP. They issued a press release on March 17th, and are currently seeking a lead plaintiff for their lawsuit. Eastside Holding Inc. also filed on Monday in Manhattan federal court, and I believe that they were technically the first company to file against Bear Stearns. There will obviously be many, many lawsuits and motions filed against the company. When you have a company that is as well-established as Bear Stearns is, you will naturally have many people that have financial ties to the company. You will have your large shareholders, such as Joe Lewis, and your smaller shareholders, such as the company employees, who will be up in arms about this proposed transaction between JPM and Bear Stearns. Bear Stearns employees own a reported 30% of the company. Joe Lewis, a British billionaire who just recently invested in Bear Stearns, stands to lose a billion dollars if this transaction goes through. Old Mutual's Barrow, Hanley, Mewhinney & Strauss is the largest single shareholder at 9.7%, and I am sure that they will have problems with the deal as well. Obviously there are many that think that Bear Stearns will end up fetching a higher price than the $2 per share offer that is currently on the table. Bear Stearns closed today at $5.91, almost triple the offer price, so people either a) are living on false hope or b) are betting on a higher offering price and undoing of the current deal. So far, the lawsuits that I have seen filed are seeking shareholders who purchased the stock between late 2006 and March 14th, 2008. The lawsuits claim that Bear Stearns issued "materially false" and "misleading" statements regarding the company's business and financial results. They go on to claim that Bear Stearns traded at "artificially high" price of $150+ per share due to these misleading statements, and that the company should have informed the public about the problems that they were having with their hedge funds that had exposure to the subprime market. What a mess! Obviously when you have a company with a multi-billion dollar market cap that collapses overnight and then sells for a couple hundred million dollars, you are going to have some very angry shareholders. From $60 to $30 to $2 in just two trading sessions. Most people are asking the question: how could such a well-established and profitable company suddenly have so much "bad stuff" on their balance sheet? Enough so that they just basically disappear overnight into the hands of an eagerly awaiting JPM? It surely won't make BSC shareholders feel any better when they tune in to CNBC and have to listen to talk of JPM making "billions" from this deal. Wall Street obviously thinks that it is a good deal for JPM as well, as the stock traded much higher even during the doom and gloom of Monday's trading session. I don't have an answer as to what is going to happen. There are so many questions going through my head as it relates to this transaction. Can a group of angry shareholders block this deal, even if it means possibly going against the Fed and throwing the global financial markets into another unsettled period? Is this deal doesn't go through, who would step up to buy BSC? Were there other suitors who were willing to offer more? What happened to them? Were they allowed a fair opportunity to negotiate? Or was the Fed only offering a "$30 billion dollar line of credit" to JP Morgan and not other companies? I know one thing. This story has plenty more zigs and zags left in it.
Who said they had to? Moreover, in a 'free market' financial market, what gives them the right to arrange a marriage, extending specific guarantees and terms, backed by taxpayer dollars, to one particular firm, and granting that one firm poison arrows to thwart other bids? I'm surprised to not have heard much yet from Congress, except for Schumer. I wouldn't be surprised to hear alarm bells suddenly go off among populist politicians in the days to come as the bellows deepen.
All of which will only be heard in closed door hearings. Just another of the things that "can't be discussed" in front of the American people.
They bailed out everyone else; make no mistake it was a bailout,....and fucked over BSC shareholders. Systemic Risk was just an excuse to take wealth and transfer it to others at .02 on the dollar.