Good will on Wall Street
Posted
Mar 24 2008, 01:48 PM
by
Matt Koppenheffer
Rating:
After the shocking announcement last week that JPMorgan was buying beaten-down Bears Stearns for $2 per share, the bank conceded on Monday to raise the buyout price to $10 per share. Call it the spirit of Easter, or just that warm feeling from the beginning of spring, but the amended offer strikes me an awful lot like a gift from JPMorgan.
Not everybody agrees with me though. Right now the field is split between those that think that Bear is worth substantially more than the original $2 deal, and those that think that the original $2 was a gift itself. For Bear Stearns' shareholders, the $10 per share is probably cold comfort anyway -- the price represents a 66% cut from the stock's price the Friday before the original $2 deal was announced, and a nearly 95% drop from its peak price of around $170.
Why raise eyebrows over the deal? Because without the U.S. Federal Reserve's guarantee on $29 billion of Bear Stearns' assets it's highly unlikely we'd see anybody interested in buying the investment bank, and likewise unlikely that Bear would be able to continue as a going concern. The company gambled the wrong way and did it too aggressively and now all non-stakeholders are being asked to shoulder part of that burden through the government's support. Every extra penny that goes towards the Bear Stearns buyout will simply embolden the next round of Wall Street speculation and create the potential for more havoc in our financial system.
Motley Fool CAPS investor Merighe, who was bullish on Bear Stearns after the $2 per share offer, bet that "U.S. taxpayers are always willing to bail out a giant corporation." Does that really sound like the flavor of capitalism that got us to where we are today?
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