If Bear Stearns is being bought out at $2 why is it trading today in the high $3s?

March 17, 2008 10:49 AM

If Bear Stearns is being bought out at $2 why is it trading today in the high $3s?
posted by priorpark17 to Work & Money (10 answers total)

Speculation that another bidder could come along.

The shareholders still need to approve the deal. Some details on the deal here.
posted by mullacc at 10:55 AM on March 17, 2008

Here's another NYTimes article that deals with your question directly.
posted by mullacc at 10:58 AM on March 17, 2008

Also, traders who sold BSC short (by borrowing shares, selling them, and hoping to buy them back later at a lower price) need to cover the shares that they bought. This alone is probably not enough to drive the price that high, but could help.
posted by procrastination at 11:37 AM on March 17, 2008

Google Finance discussion of this very question.

With news that, say, the BUILDING they're in is worth more than the ENTIRETY JPM is paying for BSC (which includes said building), the shareholders might be better off bankrupting, really.
posted by disillusioned at 11:43 AM on March 17, 2008

The trading price of BSC reflects where speculators think JPM shares will trade when the exchange happens.

JPM would need to trade up to $73.08 for the exchange ratio to come out to $4 per BSC share, which is about where BSC is trading now. That's an 86% increase in JPM stock. I'm thinking speculation on another bidder (or a JPM re-trade) in combination with short covering is the more likely explanation.
posted by mullacc at 11:54 AM on March 17, 2008

With news that, say, the BUILDING they're in is worth more than the ENTIRETY JPM is paying for BSC (which includes said building), the shareholders might be better off bankrupting, really.

Bloomberg says that BSC has $73 Billion in outstanding debt. With the other obligations the firm has, I'm not really sure that the value of the building is that important in the grand scheme.
posted by Kwantsar at 12:07 PM on March 17, 2008

To elaborate on Kwantstar's post, under a bankruptcy, different priorities are assigned to the various claimholders (which I listed in previous thread). Any cash generated from the sale of the building during bankruptcy would be used to pay higher-level claims. Since stockholders fall at the bottom of the list, they would likely get nothing; under the proposed buyout, they at least get $2 or more per share.
posted by fourstar at 12:55 PM on March 17, 2008

It might be financially worthwhile for BS to go bankrupt, but it's worth something to JP Morgan to not have a bank fail. So they buy it at a loss that they can then write off. Also, how much of Bear Sterns' debt obligations are to JP Morgan? Maybe to DOES make sense to own the whole thing than it does to just be one of many debtors at a bankruptcy?
posted by gjc at 4:54 AM on March 18, 2008

the shareholders might be better off bankrupting, really.
Probably not, as the JPM deal includes $30b of short term Fed debt guarantees, which would be lost if the deal doesn't go ahead.
My bet if the deal doesn't go ahead BSC will be worth $0. So, am I shorting it. No, shorts sales are for mugs or the criminally insider informed (oh, and I would have to organise a bank transfer to a US broker to play, which takes 48 hours and by then I think it will be over)
posted by bystander at 5:39 AM on March 18, 2008

There's an explanation here along the lines that the owners of the Bear Stearns debt want the deal to go through so as to get the debt guaranteed. So, they're buying up the stock in order to influence the vote: even if the price is more than the deal price.
posted by TheophileEscargot at 2:52 AM on March 19, 2008