If you have checked the trading price of Bear Stearns Company
(BSC) stock in the four days since the company was sold to J.P. Morgan Chase
for $2 per share in J.P. Morgan stock, you might well wonder why it is trading
at more than twice the price J.P. Morgan is supposedly paying for it.
Doesn't make a lot of sense unless you follow the reasoning of some market
players and a lot of Bear Stearns stockholders. A deal isn't a deal
until it is done.
First of all, shareholders are furious. Many feel that the
Federal Reserve and the U.S. Treasury sold the company down the river or at
least did not do all that could have been done to save Bear Stearns from the
auction block. They point to the Federal Reserve's action the very day of the
Bear Stearns sale when the Fed opened its discount window for the first time
to investment banks. If that had happened a few days earlier, the lament goes,
Bear Stearns might have had some recourse to its desperate situation other than
to go through J.P. Morgan to access federal funds.
Now, whether shareholders (and 30 percent of Bear Stearns stock is owned by
its 14,000 employees, many of whom - perhaps 50 percent - are looking
at almost immediate unemployment) are correct about being sold down the river
or not, they do have to approve the sale to J.P. Morgan. Will they do so?
Well at least two are unlikely to do so. The Wall Street Journal is reporting
that Joseph Lewis, a little-known British billionaire who apparently
owns 12.1 million shares of BSC stock (8.35 percent of the total shares outstanding)
is hinting that he may attempt to round up other investors to fight the takeover.
Mr. Lewis was buying shares of BSC as recently as March 13 when he paid $55.13
Another disgruntled shareholder, Bruce Sherman, CEO of Private Capital Management,
Inc has apparently voiced his displeasure to Bear Stearns officials.
Mr. Lewis, in a filing, said he doubted shareholders would approve the sale
and that he would take "whatever action" is "necessary and
appropriate to protect the value of (their) investment.
Elsewhere, MarketWatch is reporting that Bear Stearns' debt holders
are also driving up the price of the stock by snapping up shares in order to
have a shareholder's voice in the sale decision. The feeling is that if shareholders
block the sale or attempt to force a higher price out of J.P. Morgan, the buyer
may hold firm thus thrusting BSC into bankruptcy which would leave the debt
holders pretty much out of the money.
Another reason that the price of the BSC stock is holding up is that the J.P.
Morgan offer is not in cash, but in stock. As the market has see-sawed to a
bit of a recovery over the last few days, J.P. Morgan's stock has gone
up and the value of the deal to BSC stockholders was valued by The Journal at
$2.32 per share on Wednesday. Unless there is one heck of a rally, however,
it is unlikely that the Morgan stock would reach a level to pull the value of
the deal up to the $5.93 price BSC was commanding on Thursday afternoon.