Forum Report
Timely Attention to Bear Stearns
Shareholder Issues
Discussions of investor concerns about Bear Stearns during the
past week have raised a wide range of questions about the choices
shareholders may have – and the choices they may create. And as you
probably know from reading the news, some of these questions involve
significant legal and governance issues that may set important precedents
for the evolving global marketplace, beyond any case-specific effect on
value realizable by holders of Bear Stearns stock.
Separating the Forum into two parts
To determine what information Bear Stearns shareholders need
for their decisions, and to get that information in time for it to be of
use, we will probably divide the Forum program into two sections:
-
Shareholder Rights – Addressing issues relating to voting
rights as well as basic property rights, participants in this part of
the Forum may be expected to focus on corporate governance and legal
questions.
-
Transaction Alternatives – Developing alternative terms or
parties that might be considered if the currently proposed transaction
proves to be impractical, this part of the Forum would involve primarily
investment analysis and corporate finance perspectives.
This division of activities is also intended to allow Forum
participants to be selective in their attention to the issues they
consider most important.
Practical Focus
As indicated, the Bear Stearns situation is complicated by
many issues that must be considered very thoroughly in the context of
evolving global marketplace policies. These include the hotly debated
action to sell just under 40% of Bear Stearns stock to a prospective buyer
without shareholder approval, as well as some fundamental questions about
property rights that have not yet attracted much attention. Most notably,
some observers who are less focused on details of corporate law and “good
governance” view the biggest and most obvious question to be how a
prospective buyer has gained apparent control of property and operations
before the purchase is approved, and who was responsible for allowing it.
On a very practical level, though, we must put these and all
other issues into a context of the actual choices available to Bear
Stearns shareholders. Reaching the conclusion that it’s wrong to allow
the sale of a 39.5% block of voting stock to JP Morgan, for example, won’t
do a shareholder any good unless he also has the information needed to do
something about it. Some shareholders have reportedly demonstrated this
by engaging shareholder rights lawyers to initiate litigation in Delaware
that challenges the 39.5% stock sale, but I understand from M&A lawyers
that there may be additional types of deal-blocking actions that other
shareholders might want to consider.
Need to develop constructive alternatives
It should be emphasized, too, that addressing what
shareholders oppose will serve no purpose unless we also address
constructive alternatives. Assuming nobody knows of another bidder that
has the interest and ability to replace JP Morgan, it’s unlikely that the
currently proposed transaction will be stopped unless it can be replaced
by something that’s reasonable and fair to all the parties. This will
require creative solutions, along the lines of a suggestion by a hedge
fund manager (he gave me permission to use his suggestion, anonymously)
that JP Morgan issue securities with rights to some portion of proceeds
from fair market dispositions of Bear Stearns assets.
Organizing panels and workshops
We expect to be considering the organization of panels or
workshops over the next few days to address the various issues, with an
appropriate sense of urgency for choices that require immediate attention
but also an appreciation of the need to understand the realistic goals to
which any single decision may contribute.
Your advice about the kind of information and expertise you
need, and when you’ll need it, will be welcomed to guide us. I’ll also
welcome your suggestions of experts we might invite to help Forum
participants define and analyze their choices.
GL – March 31, 2008
Gary Lutin
Lutin & Company
575 Madison Avenue, 10th Floor
New York, New York 10022
Tel: 212-605-0335
Email: gl@shareholderforum.com