Bear Stearns faces action over cut-price takeover

Enraged shareholders at Bear Stearns are threatening an assault on the company's cut-price takeover by JPMorgan Chase, and its share price yesterday reflected hopes of an alternative outcome for the bank.

With JPMorgan having guaranteed all of Bear Stearns' trading liabilities between now and the closure – or collapse – of the deal, investors and some analysts speculated Bear now had breathing space to restore order to its business, plan a more orderly liquidation of its positions and hope for a rival suitor willing to pay more.

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The $2-per-share takeover agreement, brokered by the Federal Reserve, was at a fraction of the price at which the company's shares had been trading on Friday, but it became clear over the weekend that a liquidity crisis would force it into bankruptcy protection in the absence of a deal.

Because the book value of the company remained close to $84 per share, chief executive Alan Schwartz had suggested last week – and some investors, analysts and employees argued yesterday – that shareholders would have got more money back if the company had been liquidated.

Some complained Bear Stearns shareholders had been sacrificed by the Fed in its desperation for a fix that did not destabilise the financial system. The company's second largest shareholder, Joe Lewis, the British currency trader whose disastrous investment in Bear Stearns last autumn has lost more than $1bn, predicted shareholders would reject what he called "a derisory offer".

Anger began as early as Sunday night's conference call to discuss the deal. An individual Bear Stearns shareholder asked why the transaction benefited the bank's investors more than a liquidation, but JPMorgan's finance chief Mike Cavanagh said he should direct his question to Bear managers instead. The unidentified called concluded: "I vote not to approve this sale."

JPMorgan shares jumped more than 10 per cent yesterday as investors decided its acquisition was a steal, but Mr Cavanagh said the deal will cost it much more than the $236m (£118m) it is paying for Bear Stearns shares. He put the figure at $5bn-$6bn, including integration costs, a restructuring of Bear's trading positions and – top of the list – provisions for potential legal actions from shareholders, trading partners and others.

Jeff Harte, analyst at Sandler O'Neill, told clients: "We suspect many Bear Stearns shareholders will be disappointed with the outcome, and, while we believe an approval is the more likely outcome, we do not believe it is incomprehensible that this deal may have bought the company additional time to assess its situation which may lead shareholders to reject the offer."

Bear Stearns has promised to put the deal to its shareholders within the next few weeks. In an emergency review over the weekend, regulators have already given the deal the green light, JPMorgan said that it was expected to close in record time before the end of June.

It remained highly uncertain last night what the consequences of a shareholder rejection of the deal might be, but a closing price of $4.81 per Bear Stearns share suggested that some investors were betting on a more positive outcome.

JPMorgan's agreement to guarantee all Bear Stearns transactions means it already has the right "to direct the business, operations and management" of the company. If the deal is not approved, it has the right to buy Bear Stearns' midtown Manhattan headquarters, making an independent future particularly complicated.

Meredith Whitney, the bearish financial sector analyst at Oppenheimer & Co, said there was no bank with the balance sheet strength to take over Bear Stearns, other than JPMorgan. She advised shareholders to cut their losses. "They should take the money and run."