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NEW YORK (Reuters) – Traders who piled headlong into cheap Bear Stearns shares last week got rewarded on Monday with a windfall when JPMorgan Chase & Co lifted its buyout bid by a five-fold margin.
Bear’s stock turned into a day trader’s playground on March 14, when it announced a deterioration in its liquidity. On March 17, Bear agreed to a $2 a share deal to sell itself to JPMorgan. That was bumped up on Monday to $10 a share.
Hedge funds, arbitrage traders, Bear bondholders and those unwinding short positions were among those said to be buying Bear’s stock last week as it traded between $2.84 and $8.50.
The average daily volume traded in Bear’s stock over the last 10 days was 96.6 million shares — nearly equal to Bear’s free float of 110 million shares. March 14 saw the biggest spike in volume, with 187 million shares changing hands.
“It would seem those who … stepped into those shares anywhere between $2 and $5 have obviously done very well,” said John Augustine, chief investment strategist with Fifth Third investment advisors. “You now have a whole another set coming in at $10 to $13 a share that wants to do equally as well. Their chances of being equally rewarded are materially less, given the structure of the deal.”
Of course, for every winner, there’s a loser. It is quite possible that some Bear stockholders sold out last week, thinking that getting $3 or so was the best they could do.
They may have an opportunity to recover the difference, said class action lawyer Roger Kirby at Kirby McInerney & Squire. He said he has been approached by Bear shareholders, but not filed any litigation.
But to do that, it would have to be proven that someone at JPMorgan or Bear had known the initial bid was “just testing which way the market wind could blow and they had a backstop plan” to increase, he said. Continued…
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