The New JP Morgan Chase Bear Stearns Deal

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Earlier this afternoon Bear Stearns has posted to its Web site the amended merger and guaranty agreements in connection with the renegotiation of JP Morgan’s purchase. Some quick takes:
•As has been widely reported, the new price works out to around $10 per share. Speculators, bond-holders and dissident shareholders have been greatly rewarded for owning BSC. People who bought credit default insurance, and wanted to vote against the deal hoping Bear would default on its bonds, were smart if they bought BSC as a hedge.
•The Fed’s role in all this has changed. Now the Fed is taking control of $30 billion collateralized by illiquid assets from Bear in exchange for its $30 billion liquidity loan. The portfolio will be managed by Blackrock, so now Merrill Lynch (which owns about half of Blackrock) is in on the deal. JP Morgan is on the hook for the first $1 billion in losses on the portfolio.
•Did the Fed fix the $2 bear price? The controversy continues. This morning Andrew Ross Sorkin said yes, while Steve Liesman said no. This morning Liesman backed off, saying his sources were giving him conflicting reports on the Fed’s role in the pricing.
•The higher price is already leading some to refer to this as a bailout. Henry Blodget reads the tea leaves and says even bigger bailouts are on the way.
•Prices for BSC blew right past that $10 price tag, and now the action is in $15 calls.
•The Deal Professor has a good summary of the changes in the agreements. Unfortunately, he’s still buying the line that the guarantee was inadvertently broad. “The amendment makes clear that JPMorgan didn’t get the guarantee they wanted on the first bite,” he writes. Don’t you believe it. The changes really suggest nothing more than that the guarantee wasn’t getting the job done and they didn’t see any need to keep it out there.

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