Best hope for Bear investors: more money from JPM

The wind blows the JPMorgan Chase flag outside its building in front of the Bear Stearns building across the street in New York, March 17, 2008. (REUTERS/Chip East)

NEW YORK (Reuters) - Bear Stearns Cos <BSC.N> shareholders like tycoon Joseph Lewis are hoping that another suitor will emerge to challenge JPMorgan Chase & Co <JPM.N>, but their best hope may be prying a few extra dollars from JPMorgan itself, analysts said.

Lewis, who owns about 8.35 percent of Bear's shares, said in a regulatory filing on Wednesday that he is prepared to "take whatever action ... necessary and appropriate to protect the value of (his) investment." That may include talking to Bear Stearns or other parties about possible options for the investment bank, the filing said.

Press reports disagree about whether Lewis is seeking another buyer for Bear, but analysts say finding one that could pass muster with the U.S. government is a tall order.

"People are fantasizing," Keith Wirtz, president and chief investment officer at Fifth Third Asset Management, which manages $22.5 billion, said of investors who have bid Bear Stearns substantially above JPMorgan's $2.32-a-share offer.

But by getting enough shareholders to commit to vote against the deal, 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.

Bear Stearns shares closed Wednesday at $5.26, more than double the value of JPMorgan's offer. Still, that was down 11 percent from their surge the day before, in what could be a sign of waning optimism about a higher price.

JPMorgan agreed to buy Bear on Sunday in a deal now worth nearly $340 million. The transaction was encouraged by the U.S. 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. The No. 3 U.S. bank 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 contracts.

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 it might win over investors that bought on Monday at, say, $3 a share.

WHITE KNIGHT -- A FAIRY TALE?

Some investors are hoping for other potential buyers to emerge. The New York Post reported that Lewis and Bear Stearns Chairman James Cayne are looking for a bidder to top JPMorgan's offer.

The Financial Times, however, reported that people familiar with Lewis denied he was looking for other bidders, saying he thought JPMorgan would end up buying Bear but that he would agitate for a higher price.

The merger agreement between JPMorgan and Bear suggests that Cayne would not be able to solicit other bids. The agreement says that Bear's employees can't "solicit, initiate, encourage, facilitate ... or take an other action designed to facilitate any inquiries or proposals regarding any ... alternative transaction."

Cayne, reached late on Tuesday, said he wasn't talking to reporters.

The likelihood of another buyer coming in is remote, because few U.S. banks have the capacity on their balance sheets to take on the potential liabilities at Bear.

The Fed offered $30 billion of financing for Bear's assets to JPMorgan, but political pressure would make the Fed unlikely to extend similar credit to a foreign buyer, 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.

The Fed is working to stabilize markets, but it's a difficult job. On Wednesday, Merrill Lynch & Co Inc <MER.N> said it sued XL Capital Assurance Inc to prevent the insurer from backing out on credit default swaps. The lawsuit fueled speculation that Merrill may need to take further write-downs, helping to drag down the broader market.

(Additional reporting by Jennifer Ablan, Joseph A. Giannone, Chris Reiter and Megan Davies, editing by Dave Zimmerman, Gary Hill)