The $2 is the proposed deal, not the deal done yet. Meaning that not everybody has agreed or will agree on this deal, while not all the people are on the same side the stock jitters. The stock is indeed has entered in its speculative mode. The speculator will profit from it and doesn't care what the final deal is because he won't hold the bag at the end.
Equity shareholders are the last in line. People seem to forget this most important fact. As to the way the stock is trading . . . Hope springs Eternal!
From Bloomberg Bear Stearns-BSC: The Mystery of the Bid-Up: Opinion [MORE] 2008-03-18 13:37 (New York) Bear Stearns-BSC: The Mystery of the Bid-Up: Opinion As we see the stock up +45% and have seen the entire trading float turn today the question has to be asked - why do traders believe a higher bid has a chance even if one is forthcoming? While we could be wrong there appear to be a number of provisions in the deal that would make a rival bid very tough. First, JPM has a right to purchase 20% of the company at $2. That would be large enough to block a potential rival or at the least discourage a bid. Second, there appears to be an unusual "lock up" for Bear Stearns. From what we have read even if a rival bid emerges JPM can force BSC to wait until March 16 2009 before allowing it to accept it. Without putting too fine a point on it, both provisions seem like hammer locks. Add in the option to purchase the building (but only if Bear breaches or if Bear recommends a higher bid) as well into the mix and once again we have another provision which seems designed at ensuring the deal goes through as is. We will also point out that arbs are in no way discounting a broken deal in JPM. We would encourage those speculating to be clear about the potential risk being taken given the aforementioned. The action today is reminiscent of the bid-up in CFC following the BAC agreement. That did not work well for the longs.
The Royal Bank of Scotland is offering about $10 per share vs the JPM offer of around $1.91. There are already shareholder lawsuits in place, and the RBS offer is obviously more attractive for individual shareholders and employees.