JPMorgan in Negotiations to Raise Bear Stearns Bid

In television interviews last week, the Treasury secretary, Henry M. Paulson Jr., who has been closely involved in the negotiations, sought to portray the agreement not as a rescue effort but as a way to provide stability for the entire financial markets.

"Let me say that the Bear Stearns situation has been very painful for the Bear Stearns shareholders," Mr. Paulson said on Monday on the NBC "Today" show, referring to the $2 a share price. "So I don’t think that they think that they’ve been bailed out here."

If the price is increased, however, some critics could have more ammunition to complain that taxpayers are helping to bail out a Wall Street firm that should be responsible for its own risky behavior. That is one reason the Fed was hesitant on Sunday night to approve the transaction at $10 a share, people briefed on the talks said.

A spokeswoman for JPMorgan declined to comment on Sunday night. A representative of Bear Stearns could not be reached.

Inside Bear, the vitriol over the original bargain-basement price was palpable last week. Bear employees own more than a third of Bear’s stock, and many longtime employees faced the prospect of losing all their savings. On Monday, some were seen crying in the hallways of the firm’s Midtown Manhattan headquarters.

One employee started a Web site to rally opposition to the deal. Some employees said they talked back to their new supervisors from JPMorgan, which commandeered desks and conference rooms after being given operational control of the firm last week.

The new price would still be a small fraction of what Bear Stearns was worth before its recent meltdown. Its shares were trading at about $67 two weeks ago and as high as $170 a year ago.

Even after JPMorgan announced that it would acquire Bear for $2 a share, investors bid up the stock to close at $5.96 on Friday in anticipation that a better deal would be reached.

Some of Bear’s largest shareholders have even considered voting down the deal to send the firm into bankruptcy protection, where they speculate they might get more than $2 a share from creditors.

The British billionaire financier Joe Lewis, the firm’s largest shareholder, who had invested $1.26 billion in Bear over the last year at an average price of about $104, said in a filing with the Securities and Exchange Commission that he would seek to block the deal by taking “whatever action” necessary and would “encourage” the firm and “third parties to consider other strategic transactions.”

He and James E. Cayne, Bear’s chairman, were talking informally to friends and others about finding investors to mount a rival bid.

If Bear’s board sells JPMorgan 39.5 percent of the firm, as it was attempting to do on Sunday night, that would leave JPMorgan needing only slightly more than 10.5 percent of shareholder support to complete the transaction. And the individuals on Bear’s board, who were supportive of the deal on Sunday night, own a total of about 5 percent of outstanding shares.

Some shareholders could seek to file lawsuits to block the deal, claiming that the unusual board vote was an act of coercion.

CONTINUED : JPMorgan Renegotiating with Fed

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