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Stearns investors bear a grudge

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KAI RYSSDAL: Today’s the 19th of March — that makes it about 72 hours since the Federal Reserve saved the world. Okay, I exaggerate, but that was the mindset on Wall Street the early part of the week. By bailing out Bear Stearns, the theory went, the Fed kept the financial markets together.

JP Morgan got quite a deal at $2 a share for the busted brokerage house. So how can it be that Bear Stearns traded today at better than $5, for a virtually worthless company? Top shareholders at Bear are said to be looking for another bidder — one that could force the price even higher.

But that may or may not explain why the stock is so popular… Here’s our senior business correspondent Bob Moon.

Bob Moon: Hope springs eternal, apparently, among Bear Stearns’ biggest stockholders. And technically, it’s not a done deal — they could still line up the votes to reject the takeover bid from JP Morgan. But at Stanford University, securities law professor Joseph Grundfest says others have an incentive to buy the stock for the opposite reason: so they can cast more votes for the deal.

Joseph Grundfest: The bond holders of Bear Stearns are going to be covered by JP Morgan in this transaction. If the transaction fails, you lose all the money that you have invested in the Bear Stearns bonds.

Today, Reuters quoted a well-placed source as saying JP Morgan does not plan to adjust the terms of the deal. So absent a rival bid, which most analysts consider highly unlikely, what might cause JP Morgan to budge?

Grundfest: If one looks out over the horizon, you could imagine shareholders giving up litigation claims. You could imagine a wide variety of other forms of resolution that could rationally persuade JP Morgan to increase the amount that it pays. But as a practical matter, why would JP Morgan give up something for nothing?

Across the country at Columbia University, securities law professor John Coffee says stockholders might eke out a dollar or two more — but there a limits to how far they can push:

John Coffee: The immediate problem for Bear Stearns is, if they can’t find bidder or simply negotiate a higher price with JP Morgan, and if JP Morgan’s offer is rejected, it’s quite possible they would be in bankruptcy in a few days, where they don’t even get $2 a share.

Beyond that, one Wall Street analyst suggested today that the idea of a “white knight” is pure fairy tale.

In Los Angeles, I’m Bob Moon for Marketplace.

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