NEW YORK (Reuters) - Bear Stearns Cos Inc failed to negotiate hard enough to get the best deal before its frantic fire sale to JPMorgan Chase & Co (JPM.N), a lawyer for former Bear shareholders seeking about $2.5 billion in damages told a judge on Monday.
The lawsuit is one of a string of cases spurred by Bear Stearns’ demise. The company was bought by JPMorgan in a $1.5 billion surprise deal announced in March, a sale former Bear Chairman James Cayne has said came after a market “hurricane” hit the investment bank.
Daniel Krasner, a lawyer who represents former Bear shareholders in a proposed class-action lawsuit, said at a court hearing that the company’s board of directors made mistakes that gave it little alternative but ultimately to accept JPMorgan’s takeover offer.
He said that after Bear agreed to an emergency deal to sell itself to JPMorgan for $2 a share, it should have fought harder for better deal terms in talks that continued the following week that led to a revised $10-a-share offer.
He contends Bear Stearns shares should have been valued at about $30 in a sale and that the terms of the JPMorgan pact essentially precluded any other bidders from emerging.
“The directors gave the bank to JPMorgan,” said Krasner, who represents plaintiffs including the Police and Fire Retirement System of the City of Detroit. “The reason was they had no choice. By that time, they had turned over the keys to JPMorgan.”
Lawyers for JPMorgan Chase & Co and Bear Stearns asked New York State Supreme Court Justice Herman Cahn to dismiss the case. They said Bear’s board acted reasonably and did the best it could under extraordinary circumstances.
“The option to not negotiating a deal was bankruptcy,” said Gregory Markel, a lawyer representing Bear Stearns and some of its former inside directors.
Bear Stearns agreed to a takeover by JPMorgan engineered by the U.S. Federal Reserve as it faced a sudden cash crunch that threatened it with collapse.
Markel said that only two options were available to Bear’s board when the initial $2-a-share deal was reached on March 16 and again, a week later, when the bid was increased.
Those options, he said, were either a JPMorgan merger or a bankruptcy filing that would have resulted in zero recovery for shareholders. He said Bear’s board fought with JPMorgan for the best deal terms possible under the circumstances.
“This is not a board that’s sitting there, letting JPMorgan run things,” Markel told the judge.
Bear and JPMorgan are seeking a summary judgment ruling that would throw out the case without a trial. The judge did not indicate when he would rule.
Meanwhile, a lawyer representing British tycoon Joseph Lewis — who had held a 8.4 percent stake in Bear Stearns — said at the hearing that Lewis had not decided whether or not to join the proposed class of aggrieved shareholders in the lawsuit.
The lawyer said he was investigating the matter for Lewis, and was seeking access to documents in the case that mentioned Lewis.
Bear Stearns also faces other lawsuits, including several proposed securities fraud class-actions now being consolidated in U.S. District Court in Manhattan, that contend the company deceived investors about its financial health ahead of the JPMorgan deal.
Editing by Brian Moss