Where Does Bear Stearns Go From Here?
From $4.81 straight to $2 per share. Or $0 if shareholders are really dumb. If there weren’t already lots of opportunities to lose money on this stock, somehow certain investors are gluttons for punishment.
As noted in my earlier post, even with the $30 billion Fed backstop, it is not baked-in-the-cake that this deal is a winner. And what about those for whom the guarantee isn’t forthcoming, say, a private equity consortium, a sovereign wealth fund or a foreign bank? Forget about it. They’re not buying.
Yes, as my esteemed blogging colleague Andrew Clavell notes, it is ironic that the very shareholders who have gotten terribly hurt will be the very ones voting on the deal. But in the event that the vote doesn’t support the deal (which I believe is very unlikely), then what? This simply tosses BSC (not to mention the equity holders) into no man’s land. The Fed will be enraged, Chapter 11 will be in the offing and we may see our own version of financial markets martial law.
Can the Federal Government unilaterally assume the obligations of BSC, providing equity holders with -0- and getting down to the business of protecting the financial system (at least in their eyes)? Of course they can. And they will, if pressed. I mean, look at Eric Dinallo and the municipal bond insurers. Forcing a split? Are you kidding me? And while $236 million for BSC isn’t much, it’s something. The Fed and the U.S. Treasury aren’t fooling around. They’re severely freaked out. And they will do what they believe is necessary to make sure the current crisis doesn’t turn into Chernobyl. Little water is getting to the reactor core right now, notwithstanding their efforts to inject some liquid(ity) into the system. And if some pissed-off equity holders are getting in the way of their rescue mission? Consider them road-kill.
