Why $2?

Here’s a question I can’t help asking myself: How and why was $2 decided upon? I mean…jeez! That’s around $250 million, meaning there are problem some people who could have bought BSC outright. I guess the easy answer is because that’s what Jamie Dimon said, and no one was in a position to argue with him. It’s really no difference from being given away. Interestingly, Bear Stearns doesn’t pay golden parachutes for top execs in the case of a takeover.
I’m not sure if that price can last. If I were a BSC shareholder, I’d be furious. At some point, lawyers will most certainly be involved. One investor somehow made it onto yesterday’s call and let it be known that he’ll vote against the deal. He ain’t alone. About one-third of BSC shares are owned by employees. Also on the call, Bear insisted that’s its book value is around $80 a share. But the thing about Bear’s equity is that it only has value with in a context which, possibly, JP Morgan can provide.
Imagine if you have a Maserati. Sweet, right? Now imagine if you have it at the South Pole. Now it’s completely worthless. The car might as well be a big freakin’ rock. It only has value where you can use it, or sell it. If Bear doesn’t have capital and access to capital, then everything it owns is of no value. To continue with my bad metaphor, the role of JPM is to transport the Maserati from the tundra to a nice highway.
If we were to consider the value of Bear’s sweet crib (see pic below), then JPM is basically being paid to take on BSC. It’s not far from the government nationalizing the bank. The only difference is that they did it through the vehicle of JPM.
One more note, If I were in charge of the ECB (that’s a mighty big if), I’d be buying dollars like crazy.

Posted by Eddy Elfenbein on March 17th, 2008 at 9:11 am

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