We recently had the opportunity to discuss JP Morgan’s takeover of Bear Stearns with Sharyn O’Halloran, the George Blumenthal Professor of Political Economics at Columbia University.
Q: You have written that one of the traditional narratives of the Bear Stearns takeover, in which JP Morgan nearly walked out of the deal over the $10 share price before the Fed intervened, has some problems. Would you care to elaborate?
A: Certainly. The deal as agreed to contained multiple “poison pill” and lock-in measures. The story makes no provision for those. It also assumes several unlikely mistakes on the part of JP Morgan’s CEO.
Q: There is another narrative that suggests JP Morgan’s opening bid of $2 per share was a traditionally low first offer that simply struck a little too low for the stomachs of shareholders.
A: That explanation takes care of the assumption that JP Morgan’s CEO negotiated poorly, but it still fails to explain the lock-in provisions.