The American Mind

JP Morgan agreed to pay $10 a share for troubled Bear Stearns. That’s five-times the initial offer last week. Wall Street believed Bear was worth more than $2/share so it pushed the stock price up all last week. This encouraged Bear stockholders, like Joseph Lewis, who thought they could do much better.

The biggest reason JP was willing to up its bid was to keep other firms from poaching the talent, especially from Bear’s prized trading desk. Over 30% of Bear was owned by employees. And they weren’t happy last week [via JustOneMinute]:

Inside Bear, the vitriol over that bargain-basement price was palpable last week. Bear employees own more than a third of Bear’s stock, and many longtime employees faced the prospect of losing all their savings. On Monday, some were seen crying in the hallways of the firm’s Midtown Manhattan headquarters.

One employee started a Web site to rally opposition to the deal. Some employees said they talked back to their new supervisors from JPMorgan, which commandeered desks and conference rooms after being given operational control of the firm last week.

JP’s CEO was working hard to make sure the talent stayed on board:

Mr. Dimon became increasingly desperate in recent days. He offered certain employees cash and stock incentives to stay on and made calls to his rival chief executives on Wall Street — John J. Mack at Morgan Stanley and John A. Thain at Merrill Lynch, among them — pleading with them not to recruit Bear employees during the transition.

The new deal immediately gives JP Morgan 39.5% of the company. That will make it easier to get shareholder approval.

As for the Federal Reserve’s role in the buyout, it will still take $30 billion of Bear’s securities with JP Morgan taking the first $1 billion in losses if there are any. BlackRock Financial Management will do the duty of trying to sell them off. Given that Bear’s share price went up last week there’s a chance the Fed (ie. taxpayers) won’t take a hit. They may be more valuable than JP’s initial price and negotiations suggest. It all depends on how much of a market there is for Bear’s mortgage-backed securities, some of which are highly complex and illiquid.

“J.P. Morgan Agrees To Increase Bear Price”