Bear investors may challenge JPM buyout provisions

By Martha Graybow

NEW YORK (Reuters) - JPMorgan Chase & Co appeared to have a near guarantee on getting its takeover of Bear Stearns Co Inc approved by shareholders under a sweetened deal announced on Monday, but that doesn't mean the pact will be free of legal challenges.

It's not yet clear whether JPMorgan's new $10-a-share bid -- up from $2 a share initially -- will appease Bear Stearns shareholders who say the financially strapped company is being sold for a song. With the stock trading above $11 on Monday afternoon, some investors were betting a higher offer could emerge.

For shareholders who oppose the takeover and believe the company can command a higher price, there may be some legal avenues they can pursue to try to nix the deal or change its terms, corporate law experts say. Still, they say, it would likely be an uphill battle.

"The prospect of stopping this with an injunction is very difficult," said Michael Kelly, a partner at law firm McCarter & English who specializes in corporate litigation.

One thing shareholders may scrutinize is a so-called "deal protection" device in the revised bid that allows JPMorgan to buy 39.5 percent of newly issued Bear Stearns' common stock at $10 a share.

Together with a 3.6 percent stake held by Bear Stearns' board members, that would give JPMorgan more than 43 percent of the vote when the deal is put to shareholders -- greatly increasing the likelihood that it will win majority approval.

Legal experts say deal challengers could try to argue that Bear's board, by agreeing to sell this large chunk of stock, is now essentially barring any other viable bidders from coming on the scene, said Gordon Smith, a corporate law expert and professor at Brigham Young University's law school.

Such a move could raise questions about whether the board is performing its fiduciary duty to get the best offer for the company, from either JPMorgan or another entity.