Bear Trapped: Alternative to Deal Unlikely

Updated from 4:05 p.m. EDT

Expecting a white knight for Bear Stearns ( BSC)? Don't hold your breath.

The vise-grip of JPMorgan Chase's ( JPM) buyout offer that Bear's shareholders find themselves ensnared by is not likely to loosen. The deal has a 98% chance of being wrapped in the coming weeks and months speculated a high-level executive at Bear, who spoke to under condition of anonymity.

The executive notes that there is a number of competing factions that have varying interests making the outcome of the deal still in doubt, but the official held out little hope that JPMorgan's bear hug is not permanent. Conference calls to discuss Bear's options have taken precedence over the day-to-day investment banking business that made the 85-year-old firm a storied franchise, the source says.

On the heels of sinking as low as $2.84 after JPMorgan's $2-a-share offer Monday, Bear's stock spiked as much as 200% Tuesday but more recently was trading at $5.21.

Reports suggest that Bear bondholders have been purchasing stock in the fixed-income centered investment shop in order to vote in favor of the deal and receive the backing of JPMorgan, while other parties are piling in with the hope that they can nix the offer or push for a juiced price.

While it's unlikely that another suitor such as HSBC ( HBC) or private equity shop Kohlberg Kravis Roberts will swoop in, as the New York Post has reported, it's almost certain that a sweetened offer from JPMorgan, led by CEO Jamie Dimon, will be put on the table, the source says.

The rationale for increasing the deal is that Dimon wants to appease angered investor groups and employees and score approval for the deal, rather than see it stalled in protracted talks. Bear's headquarters alone are said to be worth approximately $8 share and the Federal Reserve is posting a $30 billion backstop against mortgage securities held in Bear's Level 3 bucket, where many hard-to-value securities have been placed. So increasing the price comes at little risk to JPMorgan, the official notes.

Calls to Bear and JPMorgan spokesmen were not returned.

Bear's well-heeled executives, including former CEO Jimmy Cayne and current CEO Alan Schwartz, as well as rank-and-file investors, are facing billions in losses. For many, the losses mean the evaporation of retirement nest eggs and college tuition savings for their children.

The stunning and swift deterioration in Bear Stearns' financial health, which teetered on bankruptcy, blindsided many Bear staffers, who could never have imagined they'd wakeup on Monday to a buyout offer that values a company once worth $20 billion at about $240 million. Just last Friday, Bear was worth $5.7 billion.

Moments after the deal was consummated, JPMorgan executives reached out to a handful of top-flight talent at Bear in an attempt to placate concerns about job security.

The possibility that the JPMorgan buyout might be set asunder or another suitor might emerge is a remote one. But what makes the prospect that much more daunting is the multitude of clauses -- widely reported and confirmed by the source -- and provisions that would see JPMorgan walking away like bandits.

A vote to approve the deal -- even if rejected -- sees JPMorgan with an option to purchase approximately 20% in Bear at $2.34. And it can call for an unlimited number of meetings to vote to approve the deal for a year.

Another kicker is that if should another bidder emerges, JPMorgan still walks away with Bear's headquarter building at 383 Madison Ave. in New York, which, by some estimates, is worth $1.4 billion.

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