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View Full Version : Bear Sterns Stock Selling Above Purchase Price



Extravoice
2008-Mar-19, 12:23 PM
Can anyone explain Bear-Sterns' current stock price of $5.91 when the company is being sold for $2 a share? I truly don't understand the economics going on here.

As you are probably aware, the company had a melt-down last week and is being purchased by JP Morgan for $2 a share. As the Federal Government is backing this sale, it is pretty much a guaranteed to happen. Doesn't this mean that at some point in the near future, if you have a share of BSC, it will become $2. How is it possible that the stock is currently trading at nearly $6?

As a reference, the company I work for was bought by another one a couple of years ago. The deal included cash and stock. As a hypothetical example, the buying company offered one share of its stock plus $1 for each share of the bought company. When the deal concluded, that is exactly what the stockholders got (I owned a few shares, so I know that's how it played out.) Why would someone pay $6 for something that is guaranteed to deliver a $2 payback? :eh: I must be missing something.

Ronald Brak
2008-Mar-19, 12:41 PM
People who hold bonds in the company will be a lot better off if the deal goes through. But if the rescue plan is rejected at the shareholder's meeting, bond holders risk losing everything. So they are buying up shares so they can vote in their own interest. Also, if the deal doesn't go through the stock can raise in price, even as bonds go down in value.

Heid the Ba'
2008-Mar-19, 03:13 PM
Or to phrase Extravoice's conundrum another way: "Why would anyone sell to JPMorgan for US$2 when they can get US$6 on the stockmarket?"

Ronald Brak
2008-Mar-19, 03:34 PM
Or to phrase Extravoice's conundrum another way: "Why would anyone sell to JPMorgan for US$2 when they can get US$6 on the stockmarket?"

JP Morgan Chase is buying shares held by Bear Sterns itself. Without the deal, shares in other people's hands wouldn't be worth so much. Think chicken and egg.

Heid the Ba'
2008-Mar-19, 03:45 PM
So Bear Stearns holds some of its own shares which it will sell for US$2 so that other people's shares will be worth US$6 or so?

If Extravoice is right they are worth that just now (more or less).

Ronald Brak
2008-Mar-19, 03:53 PM
The shares are worth $6 or so to people who hold Bear Sterns bonds. They need the shares so they can vote for the deal at the stockholder's meeting. With the deal their bonds are safe, but without it the bonds are likely to become worthless. Without the deal by JP Morgan Chase, bond holders wouldn't be buying shares and pushing the price up.

Heid the Ba'
2008-Mar-20, 08:58 AM
Are enough bondholders doing this to make a difference? My understanding is that staff own 30% of the company and Joseph Lewis* owns 10% and neither are going to sell for $2 when they can get $6.

I couldn't find what volumes of stock are being traded, any ideas?



*he described the offer as "derisory".

Ronald Brak
2008-Mar-21, 03:24 AM
I'm afraid I don't know the details.

Extravoice
2008-Mar-24, 12:08 PM
Apparently, the stock market did know something that I didn't. According to the news (http://www.nytimes.com/2008/03/24/business/24deal.html?em&ex=1206504000&en=b9a23db3c4146e50&ei=5087%0A), JP Morgan has been in negotiations with Bear Stearns to increase the bid from $2 to $10 per share in an effort to get majority stockholder approval.

JustAFriend
2008-Mar-27, 09:35 PM
Two things I learned years ago from working in the PR department of a brokerage:

A) Dont trust anything a broker tells you (sorry if anyone's a broker here... but the guys I worked with were all just a bit shady or worse...)

2) A stock's price has absolutely nothing to do with economics, real numbers or reality--- it's all PERCEIVED value.

Jim
2008-Mar-28, 01:25 AM
From the AP:

Bear Stearns Cos. Chairman James Cayne on Thursday dumped his entire stake in the embattled investment bank for $61 million as it appears closer to a takeover by JPMorgan Chase & Co.

Cayne sold 5.66 million shares for exactly $10.84 a share on March 25, according to a filing with the Securities and Exchange Commission. ...

Of course, at the old price, his stock was worth about $1B.

Warren Platts
2008-Mar-29, 04:26 PM
From the AP:

Bear Stearns Cos. Chairman James Cayne on Thursday dumped his entire stake in the embattled investment bank for $61 million as it appears closer to a takeover by JPMorgan Chase & Co.

Cayne sold 5.66 million shares for exactly $10.84 a share on March 25, according to a filing with the Securities and Exchange Commission. ...

Of course, at the old price, his stock was worth about $1B.
Wow, I feel really sorry for him. Only $61 million. . . . :boohoo: