Bear Stearns Shareholders OK JPMorgan Deal

Bear Stearns Cos. shareholders on Thursday approved JPMorgan Chase & Co.'s $2.2 billion buyout of the investment bank whose wagers on subprime mortgages made it the largest corporate casualty of the global credit crisis.

The widely anticipated "yes" vote at Bear Stearns' midtown Manhattan headquarters means the company will officially become part of JPMorgan Chase by Friday. JPMorgan Chase confirmed that Bear Stearns' shareholders approved the deal, and said it would release the vote tally later.

The bank is buying Bear Stearns for about $10 a share. Back in January 2007, before mortgage defaults began clobbering banks and draining demand from the debt markets, Bear Stearns had traded at $171 a share.

The meeting began at 10 a.m. and lasted less than 10 minutes. Some of the 85-year-old investment bank's shareholders said afterward they were angered by the speed at which the deal was approved.

"They were up there drinking coffee paid with my money ... and we lost our money overnight," said Hannah Horgan, a Bear Stearns shareholder. "I have nothing left, and they were so calm."

Arthur Ulrich, another shareholder, said he was fixated during the meeting on the faces of Bear Stearns' outgoing management. He said longtime chairman and former CEO James Cayne, who presided over the meeting, "looked rather disheveled."

"He said he was sorry for what happened, but did not apologize for his actions," Ulrich said. "He said (Bear Stearns management) ran into a hurricane, and not to believe what you see in the press."

Bear Stearns' troubles can be traced back to last June, when two of its hedge funds collapsed. Those fund casualties not only foreshadowed the investment bank's own demise, but also effectively launched the recent credit crisis by showing how much damage the slumping mortgage market could incur on the companies that bought, repackaged and sold the loans.

The deal's approval comes as no surprise - since offering to take over the firm two-and-a-half months ago at the behest of the U.S. government, JPMorgan has purchased nearly half of Bear Stearns Cos. stock, virtually guaranteeing shareholder approval. JPMorgan also upped its initial offer of $2-a-share to $10-a-share after outcry from Bear Stearns shareholders, many of whom are employees that JPMorgan intends to keep on staff.

But just as the world's financial system has far to go in recovering from bad bets on debt, so does JPMorgan in its integration of Bear Stearns.

"Doing the deal is the easiest part," said John Koob, who works in mergers, acquisitions and restructuring at Towers Perrin. "When the champagne cork pops, the real work now begins."

JPMorgan shares rose 96 cents, or 2.2 percent, to $43.83 in midday trading, while Bear Stearns shares rose 20 cents to $9.58.

Most industry experts believe the deal will be eventually be a lucrative one for JPMorgan.

"Six months from now, who knows whether it will be good, bad, how things will be impacted. Six years from now, people will be saying this was a good decision," said Sandler O'Neill & Partners bank analyst Jeffrey Harte.

And the timing of the buyout, while difficult because of the turbulent credit environment, may end up being ideal for JPMorgan. Towers Perrin and London's Cass Business School recently released a study that found that historically, the deals creating the most value occur in post-peak years - like this year.

Still, the acquisition process could be difficult for JPMorgan, which has suffered its own big losses in loan investments. The integration will not only involve taking on Bear Stearns' distressed securities, but also effectively managing the approximately 7,000 Bear Stearns employees coming aboard and retaining the clients of what was the nation's fifth-largest investment bank.

"It's a fairly large, fairly complicated integration," Harte said. "Cultural meshing can be a challenge."

Mayiz Habbal, senior vice president of the securities and investments group at Celent, noted also that some 700 systems between the two firms need to be synchronized. It will likely take six months for JPMorgan to sift through Bear Stearns' assets, he estimated, and about two years to integrate the people, systems and real estate.

On Wall Street, the downfall of Bear Stearns and its former chief Cayne is already being regarded as one of the great American corporate tragedies.

"You'll see books published," Habbal said.

Outside of Bear Stearns' headquarters Thursday, people hawked $20 T-shirts with a caricature of Cayne playing the violin on the 19th hole of a golf course, while portrait artist Geoffrey Raymond displayed a five-by-four-foot rendering of Cayne.

Raymond, who plans to sell the work on eBay at a starting bid of $3,500, allowed passers-by to scribble notes on the painting. Some of their comments: "Hubris - thy name is Jimmy."