Bear Stearns (BSC) shareholders are appalled that JP Morgan (JPM) is absconding with the firm for $2 a share. One big one, Britain billionaire Joe Lewis, dismissed the deal as “derisory.” Bear Stearns shareholders find the price so preposterous, in fact, that they’re betting they’ll be able to block the deal at $2 and at least double the takeout price. Thus the stock closed yesterday at almost $5 a share.
But, but, but…
Folks, do you think JP Morgan CEO Jamie Dimon is a moron? Don’t you think he knew the $2 takeout price would outrage Bear Stearns shareholders?
According to the WSJ, JP Morgan tucked two key provisions into the mountainous contract that was thrown together over the weekend–provisions that should probably make Bear shareholders rethink their ability to kill this deal. To wit:
- If Bear shareholders reject the deal, JP Morgan has an option to buy 20% of Bear Stearns for $2 a share with no shareholder approval. If Bear shareholders start to stomp their feet, one imagines that this will be the first thing JPM Morgan does. Whatever price concession’s Bear Stearns shareholders manage to extract, moreover, they won’t all be coming out of JP Morgan’s hide.
- JP Morgan has an option to buy Bear Stearns’s mid-town Manhattan headquarters for $1.1 billion if the deal falls through. This gleaming new building has an estimated net worth of $1.4 billion–or approximately 5-times the total amount that JP Morgan has agreed to pay for Bear Stearns. This option means that JP Morgan can abscond with what is arguably Bear’s most valuable asset with no shareholder approval.
Add these two provisions to the reality that the Fed has backstopped JP Morgan, not Bear Stearns (at least not explicitly), and Bear Stearns shareholders should probably be careful what they wish for. JP Morgan has clearly constructed this deal in the expectation that Bear shareholders will put up a fuss, and they’ve guaranteed that, whatever happens, they’ll walk away a winner.
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