Was Bear Stearns Guarantee a Mistake by Wachtell Lipton?
Legal tongues are wagging over a report that raised questions about whether lawyers at Wachtell, Lipton, Rosen & Katz made a mistake in JPMorgan’s original contract offer to buy Bear Stearns for $2 a share.
A person briefed on contract talks told the New York Times that a clause inadvertently included in the agreement required JPMorgan to guarantee Bear Stearns’ liabilities even if shareholders voted down the deal. JPMorgan CEO James Dimon was reportedly “apoplectic” after learning of the clause, the newspaper said. As it became more likely that shareholders would block the purchase, JPMorgan came up with its new offer of $10 a share.
Morton Pierce, co-chairman of the mergers and acquisitions practice at Dewey & Leboeuf, told Portfolio.com that it’s difficult to say who was responsible for the guarantee provision or whether it was a mistake. “The deal has so many unusual features, it’s really hard to say,” Pierce said.
George Washington University law professor Lawrence Cunningham gave Wachtell the benefit of the doubt in an interview with the Wall Street Journal (sub. req.). “Bear was fighting for its life, and a handful of forces were at play,” he said. “It makes sense that JPMorgan would want to add credibility to the deal by giving a big guarantee.”
In any event, the clause is off the table, the Wall Street Journal says. The new deal says that if shareholders reject the offer, JPMorgan’s guarantee ends in 120 days. A press release announcing the $10 a share offer says the guaranty of Bear Stearns’ trading obligations has been “significantly clarified and expanded.”