Say the shareholders reject the deal, the next day their shares are canceled in bankruptcy proceedings backed by the Fed, Treasurer, SEC, and the President followed by debt holders voting in favor of the merger.
Contrary to a lot of misinformation circulating (not there, but in the mainstream press), JP Morgan has an option to buy "up to" 20% of BSC shares.
pick a good entry, short the underlying with a stop loss and buy july otm call of same position size pure speculative play, but the reasoning is it will either sell for $2 or gap up if the deal fails.
TALK BACK: Holder Will Vote No To Force Bankruptcy Liquidation 7 minutes ago - Dow Jones News The comment below responds to the question we posed on Dow Jones NewsPlus: Should Bear Stearns (BSC) holders accept the $2 a share offer JP Morgan (JPM) and why? Here's what Nye Lavalle, a private investor, investor and consumer advocate, in Atlanta, writes: As a BSC shareholder and beneficiary of certain Pew trusts that hold BSC stock, I have been warning Bear, its board, CEO and auditors for years about the impending implosion that has occurred. There are many responsible for Bear's fall. My recommendation and our vote of our shares will be to turn down the proposal and force a bankruptcy liquidation. Now why, some may ask, would we prefer bankruptcy? Well, since many of Bear's ABS/MBS deals were really financing of receivables and not "true sales," the bankruptcy system, trustees, and courts could very well seek the return of those assets back to BSC. Regardless of the outcome, there is and will be litigation. So, the best forum with the most advantageous laws would be the Federal Bankruptcy Court for Bear shareholders, investors, employee pension funds etc... However, the downside, is that the house of cards and black box alchemy tools used by many of Bear's partners, counter-parties, trusts etc...will be open for all to see. Thus, those harmed could hold the real parties responsible for the collapse. The true and real value of Bear can be decided whether it is $1, $2, $6, or $80. The value to any of us now is chicken feed, but the implosion has left many burned. Those with the most severe burn damage don't care about the measly $2 a share offer, but do care about seeing how it happened; who made it happen; why it happened; and seeing in the open, what was and wasn't there. If executives and partners do a perp walk, so be it. Transparency, accountability, and responsibility need to be the new buzz words on the street for the next decade. (TALK BACK comments may well be submitted by readers who have a financial interest in the securities that are being discussed.) (TALK BACK: We invite readers to send us comments on this or other financial news topics. Please email us at TalkbackAmericas@dowjones.com. Readers should include their full names, work or home addresses and telephone numbers for verification purposes. We reserve the right to edit and publish your comments along with your name; we reserve the right not to publish reader comments.) > Dow Jones Newswires 03-20-08 1129ET
+1 ng, you're right. I was going to straddle BSC, but the puts are exponentionally higher than the calls. One is better off naked shorting to the downside.
I'd say $10 (assuming it gets done for that) is 5x as much $2. And it might go higher. But even if it doesn't, who's your daddy? [j/k] (A high risk-high reward position lies if you are willing to bet on a pullout by JPM, in which case BSC trades back down at the $2 and under level) JPMorgan in Negotiations to Raise Bear Stearns Bid By ANDREW ROSS SORKIN Published: March 24, 2008 http://www.nytimes.com/2008/03/24/business/24deal.html?_r=1&hp&oref=slogin 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. Skip to next paragraph Patrick Andrade for The New York Times The headquarters of Bear Stearns in Midtown Manhattan. JPMorgan Chase initially offered $2 a share for Bear, angering the beleaguered firmâs stockholders who said the offer was too low. 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.
Thank you. I'm still hedged with some incredibly cheap puts in case the deal falls apart and BSC plunges. If that happens, I'll really make a fortune.