Some Quick Notes on the Bear Stearns – J.P. Morgan Merger Agreement

Posted by Jeff Lipshaw

Kudos to Steve Davidoff for his quick post with a link to the Bear Stearns – J.P. Morgan agreement.  A couple notes during a quick skim.

1.  I didn’t realize from the newspaper accounts that it’s not a cash deal at $2.00 a share.  It’s in fact a stock-for-stock deal that pegged $2.00 to the J.P. Morgan stock on an exchange ratio of just over .054 shares of JPM for each share of Bear.  So Bear shareholders will continue to ride up or down depending on the markets’ reactions generally.  (I see JPM is up five percent already today, so that’s some cold comfort – the deal is now worth $2.10.)

2.  The fairness opinion on the price will come from Lazard Freres.  That should be an interesting read.

3.  Wachtell represented J.P. Morgan.  There are no lawyers listed for Bear.

4.  J.P. Morgan can force a shareholder vote even over a “Change in Recommendation” if there is an “Alternative Proposal” that the Bear board must consider in light of its fiduciary obligation.  Not surprisingly, a “force the vote” is a win for the acquiring company, as you’d expect here.  Obvious, the “asset option” to buy the headquarters, which would survive even an alternative deal is another way to lock down the deal.

5.  The Bear directors have the standard continuation of D&O insurance.

6.  The deal was reported as being “locked down” in terms of J.P. Morgan’s ability to get out.  That appears to be true.  There is no MAC (“material adverse change”) provision as a condition of closing.  The representations and warranties are made only as of the date of signing and not as of the closing.  The “bring down” certificate as to the continued accuracy of the representations and warranties in the closing conditions applies only to the bare minimum:  that JPM is getting pretty much all of the stock, that the deal is authorized, that nobody other than Lazard Freres is a broker, and that Lazard Freres will issue a fairness opinion.  It just goes to show how little you need to make a deal when you gotta make a deal!

[UPDATE:  Jeff has expanded on these thoughts in this post on Concurring Opinions. –SAC]