According to the Financial Times, J P Morgan Chase will be “forced to improve its offer [to acquire Bear Stearns]–driving shares in the beleaguered [Bear Stearns] to nearly three times the price at which J P Morgan agreed to take it over.”
Investors bet that opposition from shareholders, which include Bear Stearns employees who own about a third of the shares, could force the takeover price to be raised. Meanwhile, J P Morgan executives express confidence that the deal will be approved.
If the offer goes through, Bear’s shareholders will incur huge losses on the value of their investments. If Bear’s board recommended another offer, the company would have to issue 20% of its share capital to J P Morgan at approximately $2 a share. Furthermore, even if the deal falls through, J P Morgan will be able to purchase Bear’s Madison Avenue headquarters for $1.1 billion.
So far, it appears that few buyers were able to take on Bear’s $300 billion balance sheet and persuade the Federal Reserve to extend the $30 billion credit line to fund the bank’s illiquid assets. While J P Morgan agreed to pay approximately $2 a share on Monday, Bear’s stock has traded much higher later in the week.
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