The deal cut last weekend to save Bear Stearns from bankruptcy (JPMorgan Chase buys the company for $2 per share) is evidently being renegotiated in an effort to get more money to that company’s shareholders. When the deal was first announced, the details were fuzzy. How much was the Federal Reserve guaranteeing of this deal? How was that guarantee structured? As seen by the quotes below, some of these details are now being made public. Finally in an interesting twist, some of the shareholders are considering bankruptcy as an alternate forum for this work out since it is fair and deals are “out in the open.” However, it is doubtful that this will occur since the common wisdom is that in a bankruptcy, the assets would not bring nearly $2 per share, much less a higher price now being negotiated. However, we have seen that as more sophisticated players enter the bankruptcy sale process, the likelihood of obtaining a fair price for assets being sold increases. Thus it may well be that the parties to this process (and many people are going to be effected by this deal, see Enron for the number of layers of people involved in a company melt down) prefer the open forum of a bankruptcy to the closed door negotiations now underway. Here are some quotes from a recent NY Times article on the new negotiations.

“Under the terms being discussed, JPMorgan would pay $10 a share in stock for Bear, up from its initial offer of $2 a share — a figure that represented a mere one-fifteenth of Bear’s going market price.
The Fed, which must approve any new deal, was balking at the new offer price on Sunday night after several days of frantic, secret negotiations, these people said. As a result, it was still possible the renegotiated deal might be postponed or collapse entirely, said these people, who were granted anonymity because of their confidentiality agreements.
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While the initial agreement appeared to have defused the financial crisis of confidence that undid Bear, the initial terms of the deal — and the government’s controversial role in reaching them — drew criticism from those who say the takeover amounts to a government bailout of Bear, a firm at the center of the mortgage meltdown.
A new deal could raise even more questions about the Fed’s involvement in the negotiations. As part of the original deal, the Fed guaranteed to take on $30 billion of Bear’s most toxic assets. The central bank also directed JPMorgan to pay no more than $2 a share for Bear to assure that it would not appear that the Bear shareholders were being rescued, according to people involved in the negotiations.
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JPMorgan was also in negotiations with the Fed on Sunday to assume the first $1 billion in losses on Bear assets before the Fed’s $30 billion cushion kicks in. However, the Fed may now be seeking to raise that number.

Here is a link to the entire article from the New York Times: http://www.nytimes.com/2008/03/24/business/24deal.html?ei=5065&en=cf92462819035b80&ex=1207022400&partner=MYWAY&pagewanted=print

Michael