Bear Stearns’ stock boosted by hopes of new bidder
PHILADELPHIA (Reuters) – Shares of Bear Stearns Co Inc traded above the takeover price offered by JP Morgan Chase & Co as investors bet a new suitor may emerge, but such optimism could be pure folly, bankers and analysts said on Monday.
Bear Stearns’s stock traded at $4.71 in afternoon trading on the New York Stock Exchange, above the $2 per share offer from JP Morgan.
Shares of Bear Stearns shed $26.14, or about 85 percent, after JPMorgan Chase agreed to buy its cash-strapped rival for a rock-bottom price. Bear Stearns had a market capitalization of $3.5 billion on Friday before the deal was announced on Sunday night.
“It’s possible that there’s some hope out there that shareholders will vote the deal down and find another suitor, but I don’t see that happening,” said Peter Lobravico, vice president of risk arbitrage sales/trading at Wall Street Access.
Bear Stearns employees account for about 30 percent of the company’s shareholders, analysts said.
JP Morgan’s takeover has the backing of the U.S. Federal Reserve and the Treasury. Under the deal, the Federal Reserve will provide special financing and has agreed to fund up to $30 billion of Bear Stearns’ less liquid assets.
“The Fed’s blessing is necessary for a deal to happen. The Fed is blessing this deal and this deal only,” Lobravico said.
The hope that another could emerge is a “pipe dream,” said one arbitrageur who declined to be named.
“JP Morgan has the safety net of the Fed behind this deal,” said one head of investment banking at a U.S. brokerage firm, who declined to be named. “Where else is another buyer going to get a $30 billion safety net? If they don’t have that, no one is going to touch Bear Stearns and take that risk.”
Despite the risks, shares of Bear Stearns remained above the $2 takeover price all day. The stock hit a high of $5.50 and a low of $2.84.
“The market is pricing in a distinct possibility of a higher bidder emerging at some point,” said David Trone, an analyst with Fox-Pitt Kelton Cochran Caronia Waller.
“Another bidder could rationalize that Bear’s current arrangement will bring calm to creditors and counterparties, thus bringing an end to the run-on-the-bank,” Trone said in a research report.
Trone cautioned, however, that JP Morgan had already started the integration process at Bear Stearns’s headquarters and an option to buy the Bear Stearns office building even if the deal fails.
Those issues, as well as fears of angering the Fed, could “provide complications for future bidders,” Trone said.