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Forum Report: Alternatives Defined at May 14 Meeting


(May 15, 2008)


Subjects Addressed:


Proposed Exchange Option

Shareholder Voting

Valuation Questions



For the planned letter to JPMorgan referenced in the report below, see

For subsequently reported voting recommendations of the four U.S. proxy advisory firms, including the Glass Lewis report addressing issues discussed at the meeting, see

For the announced meeting agenda, see


Forum Report

Alternatives Defined at May 14 Meeting

Yesterday’s open meeting of the Shareholder Forum, hosted by the New York Society of Security Analysts (“NYSSA”), addressed several issues that may be considered by investors in Bear Stearns as well as in its prospective acquirer, JPMorgan Chase.    As summarized below, these issues may be relevant to both buy-sell and voting decisions.

We expect to follow up tomorrow or Monday with these reports, focused on the information requirements for shareholder voting before May 29:

  Glass Lewis [1] is expected to release its report by tomorrow on client voting recommendations for the proposed Bear Stearns acquisition by JPMorgan, and we will present it to Forum participants as soon as it’s available.

  As soon as we get Forum participant feedback to refine the idea of an optional “Value Realization” stock discussed at the meeting – or replace it with a better idea – the Forum will present the suggested alternative for JPMorgan’s consideration and comment.

The following summary of the meeting is necessarily brief, and you are of course encouraged to ask for more information about anything that interests you.


The first subject on the meeting’s agenda was a discussion with Daniel W. Krasner, of the law firm Wolf Haldenstein Adler Freeman & Herz, about his firm’s shareholder litigation claims that the proposed JPMorgan acquisition of Bear Stearns was not properly negotiated and that Bear Stearns shareholders should therefore be compensated based on a court-established value instead of what was negotiated.[2]

Generally, Mr. Krasner explained that it is not practical to try to block the proposed transaction, and most meeting participants agreed that there was and is no practical alternative to a JPMorgan acquisition.  The objective of the litigation, under these circumstances, is simply to get a higher payment to Bear Stearns shareholders.

Mr. Krasner explained that any shareholder benefit from the case will depend on the court’s finding that either (a) the sale to JPMorgan of 39.5% of Bear Stearns stock without shareholder approval was improper or (b) that JPMorgan is a controlling shareholder that must act in the interests of Bear Stearns’ minority shareholders.  If the court finds that one of these or any other claim provides a basis for awarding something to shareholders, the amount would depend on a valuation which is usually determined by courts based on presentations of professional “experts” hired by both sides.

In a discussion of what would be relevant to these findings, Mr. Krasner as well as other meeting participants familiar with how judges make decisions observed that a court could be expected to seriously consider the views expressed by Forum participants and other investors, particularly as reflected in the shareholder voting on May 29 for the currently proposed JPMorgan acquisition.  A high level of minority shareholder opposition to the proposed transaction would show a judge that the investors think they are being treated unfairly, while a high level of support would show him that investors don’t really see a need to fix anything.

If the litigation progresses to issues of valuation, it was observed that a court might also welcome the views of genuine investors on that subject.  Meeting participants familiar with the process concurred that at least some judges might welcome credible valuation information from sources other than the ritualized presentations of hired witnesses.

Proposed exchange option

The next subject addressed at the meeting was the development of a suggested alternative that could be presented to JPMorgan for its consideration, on the assumption that a sensibly designed variation of the transaction negotiated in the mid-March panic might be better for all parties, including the shareholders of JPMorgan.

As a foundation for discussion, the appended draft summary sheet and analysis of an optional “Value Realization” stock was distributed to meeting participants for their review.  The draft was introduced with an acknowledged need to simplify either this or any alternative concept, or at least its presentation, and with an invitation to (a) request analysis of different assumptions and (b) suggest improvements of either the terms or presentation.  All Forum participants are invited to do the same within the next couple of days, as indicated above.

During the meeting it was emphasized that, to be practical, the terms of any alternative to the currently proposed transaction must result in value enhancement of JPMorgan stock.  It was observed that the direct cost impact per share of JPMorgan stock was not likely to be meaningful even with extreme assumptions of the amount of value allocated, considering that the maximum number of JPMorgan shares that might be issued for the Bear Stearns acquisition would be less than 1% of the shares outstanding.  It was suggested that the most significant impact on value would be from the “brand image” result of JPMorgan’s management of the transaction, based on generally expressed views and supported by the responses of JPMorgan investors in last week’s survey of NYSSA members.[3]

Shareholder voting

Shareholder voting decisions were addressed again, noting that the earlier observations of how a court would view the results might apply also to JPMorgan in its consideration leadership responsibilities.

It was emphasized that voting could not result in a rejection of the proposed acquisition, since JPMorgan controls 51% of the vote either directly or through support agreements, so that shareholders would not have to be concerned about “killing the deal.”  Voting could be viewed as a safe expression of satisfaction or dissatisfaction with the terms presented to Bear Stearns shareholders, with the expectation that the results will be considered by the court, by JPMorgan, and by the marketplace.

Robert M. McCormick, the Chief Policy Officer of Glass Lewis, indicated that he and his colleagues would be considering the views expressed during the meeting in their determination of client voting recommendations.  As indicated above, he expects to issue the report by the end of this week.

Valuation questions

During all parts of the meeting, discussion turned repeatedly to the challenges of valuing either the stock or the component assets of Bear Stearns.  Questions ranged from the date that should be used for setting a price to the complications of determining whose securities are sold from an integrated trading desk.  It was noted during the meeting that recent reports had also created confusion between valuation and purchase accounting provisions.[4]

Based on the issues raised during the meeting as well as in other communications with Forum participants, the valuation issues will require further attention as specific applications are defined.

           GL – May 15, 2008


Gary Lutin

Lutin & Company

575 Madison Avenue, 10th Floor

New York, New York 10022

Tel: 212-605-0335



[1] The Forum had arranged for Glass Lewis & Co., a leading proxy advisory firm, to participate in the meeting and consider the issues addressed in its report of client recommendations for the May 29 vote, and then to make its report available to Forum participants.

[2] Mr. Krasner’s firm has been designated by the court as a liaison counsel for the numerous lawsuits now consolidated in the New York State Supreme Court of New York County as In Re Bear Stearns Litigation, Index No. 600780/08; for the actual claims of that case, see the March 27, 2008, Consolidated Amended Class Action Complaint (28 pages, 1,113 KB, in PDF format).  David A.P. Brower of Brower Piven, seeking to represent shareholder interests in another purported class action pursuing similar remedies in the federal court, had also accepted the Forum’s invitation to discuss his case but did not appear at the meeting.

[3] In a May 8, 2008 survey, 33% of respondents who reported being existing or prospective holders of JPMorgan stock, but not of Bear Stearns, said they would like to see alternative terms.  See May 9, 2008 Forum Report: Practical Objectives of May 14 Open Meeting.

[4] Reference was made during the meeting to recent reports of $9 billion charges that had been previously explained in the identical "Unaudited Pro Forma Combined Financial Information" sections of the April 28, 2008, The Bear Stearns Companies Inc. Schedule 14A Proxy Statement and the April 25, 2008, JPMorgan Chase & Co Form S-4/A Registration Statement.  The relevant parts of a transcript of the May 12, 2008 JPMorgan analyst presentation that apparently stimulated the confusion was filed with the SEC in a May 14, 2008 JPMorgan Chase Form 425 report.





[Distributed at May 14, 2008 open meeting]


May 14, 2008 discussion draft

Shareholder Forum for The Bear Stearns Companies, Inc.



Optional BSC Value Realization Shares


Exchange Option

JPMorgan Chase (“JPM”) will offer holders of Bear Stearns (“BSC”) the option to exchange each share of BSC common stock for either 0.21753 shares of JPM common stock, as currently proposed, or, alternatively, for one (1) share of a special class of JPM stock designated “BSC Value Realization Stock” (“BVR” shares).

Distribution Rights

A portion of the value ultimately realized by JPM from the acquired BSC assets (including business operations) will be distributed annually to holders of BVR shares.

Conversion Rights

BVR shares may be converted at any time into JPM shares, with the number of JPM shares equal to [Variable “C”]% of the 0.21753 JPM shares originally offered for each BSC share.

Value Realization

Value Realization will be determined based on

(a)    amounts realized from sales to independent parties,

(b)   independent valuations of assets or operations integrated into JPM business, and

(c)    market value of assets held for sale after 5 years.

Allocation of Value

[Variable “A”]% of the Value Realization will be allocated and then divided by the number of BSC shares that had been eligible for BVR shares.

Threshold for Distributions

Allocations of Value Realization in excess of a $[Variable “T”] per BVR share threshold amount will be distributed.




May 14, 2008 Workshop Report - Analysis

















Number of BSC shares eligible for offer



Portion of BSC shares exchanged for BVR stock



Number of JPM shares outstanding, before offer



Number of JPM shares offered for BSC shares



Value Realization from BSC assets



Market value of JPM share











Proposal Variables:




Allocation of Value Realization to eligible BSC shares




Threshold for distributions, per BVR share




Conversion Rate (percent of 0.21753 primary exchange)


















Number of BVR shares issued



Amount of Value Realization allocated to BVR shares




Percent of total Value Realization



Distribution per BVR share



Conversion value of BVR share















Number of JPM shares outstanding, after offer



JPM shares reserved for BVR conversions




Percent outstanding JPM shares



Cost of BVR distribution per JPM share











This Forum program is open, free of charge, to all shareholders of The Bear Stearns Companies, Inc. ("BSC") and to any fiduciaries or professionals concerned with their investment decisions.  Its purpose is to provide shareholders with access to information and a free exchange of views on issues relating to their evaluations of alternatives, addressing issues described in the Forum Summary.

As stated in the posted Conditions of Participation, all Forum participants are expected to make independent use of information obtained through the Forum, subject to the privacy rights of other participants.  It is a Forum rule that participants will not be identified or quoted without their explicit permission.

Inquiries and requests to be included in the Forum's distribution list may be addressed to

The information provided to Forum participants is intended for their private reference, and permission has not been granted for the republishing of any copyrighted material. The material presented on this web site is the responsibility of Gary Lutin, as chairman of the Shareholder Forum.