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Bear Shareholders Still Hoping to Get Better Price

Bear Stearns shareholders may be hoping that another suitor will emerge to challenge JPMorgan Chase but perhaps their best hope of getting a higher price is prying a few extra dollars from JPMorgan itself, analysts said.

Bear Stearns
Jin Lee
Bear Stearns

By getting enough shareholders to commit to voting against the deal and further questioning how it was done on a panic-stricken Sunday, they may be able to get JPMorgan to
budge.

"There is a time element to this. All the other firms are in there, trying to swoop up Bear employees and customers....If I were JPMorgan, I'd pay an extra dollar a share just to get
the deal done in a reasonable period of time," said Gordon Marchand, portfolio manager at Sustainable Growth Advisers in Stamford, Connecticut.

There's been a lot of talk in the past few days about a counteroffer, but so far there's been little sign of a credible outside bidder at all, let alone one that would pass muster with the U.S. government.

"People are fantasizing," said Keith Wirtz, president and chief investment officer at Fifth Third Asset Management, which manages $22.5 billion.

Bear Stearns shares were trading at $5.08 on Wednesday afternoon, more than double the value of JPMorgan's offer. Still, Bear Stearns shares were down 12 percent on Wednesday after surging the day before, in what could be a sign of waning optimism about a higher price.

JPMorgan Chase & Coagreed to buy Bear on Sunday in a deal now worth more than $340 million, or about $2.36 a share. The deal happened with the encouragement of the Federal Reserve, which feared that if Bear went out of business, the entire U.S. financial system could be shaken.

JPMorgan for its part is not worried about a rival bidder and does not plan to adjust the terms of the deal, a person familiar with the bank's thinking said. JPMorgan declined to comment.

But there may be many parties voting against the acquisition, including credit derivatives traders hoping to push Bear into bankruptcy to collect on their credit default swaps.

Investors that bought Bear Stearns shares when they were over $100 or over $150 might want much more than a few dollars a share, and may also vote against the acquisition in its current form. It's not clear if a few extra dollars would appease them. But a few extra dollars might appease investors that bought on Monday at, say, $3 a share.

And some investors are hoping for other potential buyers to emerge. According to the New York Post, Bear Stearns Chairman James Cayne and top shareholder Joe Lewis are looking for a
bidder to top JPMorgan's offer.

The two men have contacted private equity firms, including J.C. Flowers and Kohlberg Kravis Roberts & Co as well as overseas banks Barclays HSBC Credit Suisse and Royal Bank of Scotland the paper said, citing sources familiar with the matter.

The likelihood of another buyer coming in is remote, investors said. Few U.S. banks have the capacity on their balance sheets to take on the potential liabilities at Bear, even with $30 billion of financing that JPMorgan Chase received from the Federal Reserve for Bear Stearns assets.

The Fed would not likely offer financing to a foreign bank for a deal, because the central bank cares more about preserving market stability than getting the highest possible price for Bear shareholders, an arbitrageur said.

And private equity funds are also unlikely to get Fed financing, and would also not provide the same assurance of stability to Bear customers, the arbitrageur said..

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