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August 13, 2008 5:42 PM

New York Judge Hears Oral Arguments in JPMorgan-Bear Stearns Merger Case

Posted by Andrew Longstreth

For the last couple months, the JPMorgan-Bear Stearns merger litigation has been relatively quiet. But  on Monday, New York state judge Herman Cahn held a summary judgment hearing that spiced up a quiet August day. At least that's how it seems from the few pages we've pulled out of the 80-page hearing transcript. (Download Bear Stearns Hearing Transcript)

The case in question was brought by Bear shareholders claiming that Bear Stearns and its directors breached their fiduciary duty when they agreed to a buyout by JPMorgan and didn't find a better alternative. JP Morgan initially offered $2 per share, then upped the ante to $10 per share. The shareholders also are going after JPMorgan, claiming the bank aided and abetted those breaches. The hearing was on the defendants' motion for summary judgment.

Gregory Markel of Cadwalader, Wickersham & Taft argued for Bear Stearns and inside directors. Markel presented a nice overview of the extraordinary circumstances Bear Stearns found itself in last March. The company's directors were diligent in fulfilling their fiduciary duties, he argued, and negotiated a deal for more money than shareholders otherwise would have gotten had Bear Stearns filed for bankruptcy, according to the transcript.

"They had four major and respected law firms advising them, as well as Lazard," said Markel. "And all of them, all of them were advising the board that there was zero value in a bankruptcy for shareholders as well as losses to creditors."

Daniel Krasner of Wolf Haldenstein Adler Freeman & Herz, representing the plaintiffs, argued that Bear directors erred in "turning over the keys of the bank to JPMorgan," which weakened their bargaining power when they renegotiated the $2 per share price. "And had they not been in a position where JPMorgan was in effect in control, they could have said to JPMorgan, we like that first agreement, we know the price is inadequate, but we expect that someone is going to come along, another bank, and there were other banks out there that given sufficient time could have come in and acquired them for closer to fair value."

Marc Wolinsky of Wachtell, Lipton, Rosen & Katz, who represents JPMorgan, argued that his client can't be sued for aiding and abetting when the Bear board didn't violate its duties. "There was a crisis," said Wolinsky. "We've talked about it this morning. The board acted properly. And faced with...the prospect of not one bankruptcy, but bankruptcies, bankruptcy in which the shareholders would have gotten nothing and the bondholders would have lost billions, there's no basis for this court to second-guess the board's judgment."

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