Wachtell Lipton: Fallible After All?
As we can see from the comments, you’re already all over this NYT story. We linked to it in Morning Docket, but here’s a little more. Andrew Ross Sorkin writes:
JPMorgan and Bear were prompted to renegotiate after shareholders began threatening to block the deal and it emerged that several “mistakes” were included in the original, hastily written contract, according to people involved in the talks.
One sentence was “inadvertently included,” according to a person briefed on the talks, which requires JPMorgan to guarantee Bear’s trades even if shareholders voted down the deal. That provision could allow Bear’s shareholders to seek a higher bid while still forcing JPMorgan to honor its guarantee, these people said.
When the error was discovered, James Dimon, JPMorgan’s chief executive, who was described by one participant as “apoplectic,” began calling his lawyers at Wachtell, Lipton, Rosen & Katz to seek a way to have the sentence modified, these people said. Finger pointing over the mistakes in the contracts began as bankers blamed the lawyers and vice versa.
We don’t have much to add to Ted Frank’s excellent observations. Here’s an open thread for anti-Wachtell schadenfreude.
(They’re big boys — and they send their clients big bills. So the WLRK folks can take a little snark and ribbing from the ATL commentariat.)
Update (11:40 AM): Actually, did Wachtell make a mistake? If so, what exactly was their error? Over at Dealbreaker, our colleague John Carney wonders: “How do you ‘inadvertently include’ a provision everyone is talking about?” (Gavel bang: commenter.)
How Do You Inadvertently Include A Provision Everyone Is Talking About? [Dealbreaker]
The dangers of doing an M&A agreement over a weekend [Overlawyered]
Did Mistakes in the JPM-Bear Contract Help Lead to Renegotiation? [WSJ Law Blog]
JPMorgan in Negotiations to Raise Bear Stearns Bid [New York Times]
(51) Comments
Comments
Anyone who hates on WLRK is just bitter about getting dinged
The folks over at dealbreaker have some very interesting commentary on this.
HA-ha!
Malpractice?
OVERRATED
I want to get my hands on the first draft of the JMP-Bear SPA, with the word "suckers" in it.
Sorry, that's "JPM" of course.
Wachtell to Angry Jamie Dimon.
11:46 and 11:49 = WLRK transactional attorney.
S&C slipped it in under WLRK's and Cravath's noses, on behalf of Bear Stearns, no doubt.
This sounds like classic "blame the lawyer" regret, or a fanciful spin for why JPM is upping the price, instead of admitting the truth: the market caught JPM having low-balled Bear when Bear was desparate, using the Fed's money, and wanted to make it more equitable.
there was no mistake, as the post from dealbreaker makes clear. JPM just gave away too much and now is leaking to the NYT that it was somehow a "mistake."
Its inclusion is perhaps the result of miscommunication, which can happen if you're working on deadline for a deal that lasts 72 hours straight.
lol@11:57, but, alas, you are only half-right.
Ten-four 11:02. And when you say the "market" you are talking about one person. JPM is spinning this "mistake" angle under pressure from Lewis.
Mistake or not: JPM GENERAL COUNSEL HAS TAKEN INDEFINITE LEAVE OF ABSENCE...
JPM had the option to purchase the additional 20% of stock if shareholders rejected -- so clearly they anticipated a rejection.
Futhermore, the Merger Agreement is not very long document and EVERYONE knew about 1-year guarantee.
Guarantee was for collateral on swaps that would have bankrupted Bear, when their rating was downgraded (Collateral Support requirements).
nailed.
Given that the documents were drafted, negotiated and finalized in less than 3 days, I'm not surprised there were mistakes. I mean c'mon -- lawyers (even at WLRK) are only human. That was an impossible task.
CWT slipped it in under everyone's nose.
I dunno. With everyone operating on two hours sleep, it's entirely possible that either no one understood the implications of the provision, or JPM and Wachtell didn't.
These mega-firms are all usually bad in this regard. The problem is some knumbskull associate is working on these documents at 3AM and all of the partners on the deal are asleep at the wheel worry about negotiating the deal instead of reading the documents carefully, which is what they get paid to do...
Its the same at all of the mega-firms in the transactional world. Some are better than others....
This development of events seems to fly in the face of Hank Paulson's justification for putting up taxpayer money to rescue a troubled investment bank. The idea was that the 30 billion guarantee wasn't a bailout of BS shareholders b/c of the $2 price tag, thus simultaneously achieving the larger goal of avoiding chaos in the financial markets. $10 is still a far cry from what BS was trading at several weeks ago, but still...I suspect that the "mistakes" made by the lawyers in reality is just a cover for the economic interests of the wall street groupies involved.
12:19 = Credited. Dennis Block just pwned JP.
$10 doesn't really help anyone other than a Bear employee who owned 20,000 or so shares of stock. You can actually eat the difference in that case, although the $160,000 increase in value still won't save your financial future when you were counting on it being worth $2M.
WLRK to TTT?
Wachtell to job openings.
wouldn't such a guarantee was necessary to keep Bear afloat during the interim period before closing?
until bear's various counterparties knew for sure JPM would assume the obligations, they would have continued their run on the bank.
the new deal might remove the guarantee but the certainty of the transaction is now pretty high b/c JPM is gonna buy 40% of stock prior to the s/h vote.
THE FED IS NOT TAX PAYER FUNDED. IT is an INDEPENDENT federal agency, funded and owned by banks, including JPM. 12:20 has the opposite true.
FED likely agreed to back JPM offer and was shocked and appalled at $2 scalping of Bear employees when it was announced. Congressional investigations were announced and FED was part of fleecing of bear. Fed is backing out (not part of merger agreement) and JPM was considering how to back out. Dimon realized the agreement his bankers had agreed to, KNOWING FULL WELL the implications of 1-year guarantee. Like 12:14 (me) says, they anticipated fight with shareholders and process taking up to a year (hence 1-year guarantee). THe "mistake" was likely that they could not back out of their 1 year guarantee. This a short document cut over 48 hours -- there were not "sleep deprived" associates hammering this out...and there were partners and lawyers from three top law firms and two banks. Now GC at JPM has taken leave of abscence, to "fall on sword" but Dimon is laughing stock of wall street -- ANYONE who has been on a deal knows there are not "mistakes" or "inadvertant" provisions in a merger agreement with Wachtell and Cravath as counsel. Dimon to laughing stock.
Best part is now even stupidest person on wall street knows that JPM is guaranteeing Bear's swap trades for 1 year for (almost) free; so bear can reject and run business for another year with JPM's guarantee helping bear not have to post additional collateral. JPM and dimon are laughing stocks -- even more that they tried this rookie nonsense "inadvertant" move.
Bear employees now realize that accepting $10 per share will have them all fired; not hired by JPM. Dimon is pissed and will take it out on Bear employees.
Volokh also has an excellent discussion: http://volokh.com/posts/1206361088.shtml
Jamie Dimon is possibly the most evil individual working on Wall Street today. This is going to end badly for something.
And I don't care what name is on the letterhead. If someone works 48 hours solid, their work product is crap.
There is no agreement -- the previous agreement was deal of the year -- and worth more than $8 per share. Dimon is going to be paying out of the nose to get out of 1-year guarantee of Bear.
Dimon from Hero to Goat in one week.
Bear employees to an undeserved extra $8 per share!
It is trading at 14 (or whatever) now, because JPM's 1-year guarantee is worth more than $8 per share. Dimon overplayed "apoplexia" -- should have made new offer for $10 trying to ignore (just take out of new agreement) the previous guarantee. Power just shifted massively to Bear as Bear has JPM by a ring in the nose. Dimon is laughing stock -- and will soon pay $20 per share, or whatever guarantee is worth. Otherwise Bear can start selling units for cash, and leave JPM with bag at end of the day. It is indeed STUPID as hell of Dimon and team. Tried to screw bear (and defend it) and karma is a biatch! Too funnnnny.
Karma is a bitch...Dimon.
JPM is not screwed b/c they have interim covenants that allow it to direct Bear's business in a reasonable manner.
Plus they have an irrevocable option to buy Bear's HQ.
Plus they are buying and will control 40% of Bear stock.
It is trading at $14 because retail shorts are idiots and were playing around in a "news" stock without a net.
12:43--you have no idea what you are talking about. The option is more of a right of first refusal if bear goes away. JPM has an option to buy 20%, not 40%, and that provision is likely subject to legal challenge (under a variety of cases that prevent different prices to different buyer in merger context).
READ THE ACTUAL AGREEMENT -- covenants are crap -- and govern Bears ability to enter into new swaps, not direct Bears business.
in any case the value of assets is likely 5 times the 2 bln cost of this "mistake" so still a pretty good deal for JPM. Plus they get the building - worth the price tag by itself considering the shambles that is 270 Park.
The bear employees that are gloating now won't be in three weeks when they are unemployed. BSC "owners" can curse Jamie Dimon all they want, but the fact that they get anything at all is entirely his doing (or fault as it would seem) During LTCM they turned the screws and it cost everyone but them - Wall Street should have known better than to rescue a firm peopled by the unscrupulous and disingenuous.
1:00 good point.
Notice no one is actually blaming WLRK -- if you are blaming your lawyer -- you better be bringing a malpractice (or slander/libel defense) case with you! JPM GC has fallen on sword for now -- where is that report?!?!?
your hypothetical competance astounds me. Enough swirlees - and mail me some numbers.
Bear employees to an undeserved extra $8 per share... and a bonus pink slip!!
Dimon is going to fire everyone now. Honeymoon is over, Bear. Bend over and grab the KY, Jamie ain't happy.
12.53 -- i'm not 12.43 here, but suggest you look at the agreements yourself. they are up on the bsc website.
they are clear -- (1) JPM has option to buy HQ if BSC s/h vote down deal (not a rofr), (2) JPM is buying 40% of the stock and voting those shares in favor of the deal (the 19.9% option is gone) and (3) JPM can direct the business, operations and management of BSC in its reasonable discretion. the only point that you are right on is that there will be a challenge to the JPM share purchase.
So did S&C realize the sentence had been included and kept mum or did they themselves slip it in? I'm figuring the latter and if so, maybe Rodge Cohen's reputation is actually well deserved.
I think we should seize upon this moment to create a new phrase in legal lexicon: "I did a Wachtell!"
Variants may include: "I Wachtelled that," "that is Wathtelled beyond all belief," and "you can go and Watchtell yourself."
Project Jokers.
Guys at my high school inadvertently included sentences in deals all the time, it was no big deal.
It was a mistake - one of the astute commentators at WSJ Law Blog explains exactly what happened:
"i think dimon understood that trades guaranteed by jpm would still be guaranteed if the shareholders turned down the deal — what he probably didn’t understand was that bear could continue to use the guaranty even after the shareholders turned down the deal, as neither jpm nor bear could terminate the agreement until march 2009 due to the renegotiation covenant. that covenant was just pulled from the model (probably the bank of america / countrywide merger agreement, which contains the same obligation), but apparently folks either didn’t think through (or didn’t effectively communicate) the implication of that covenant (which is generally good for a buyer) in the overall context of this rather unusual deal."
See second 8:19 entry and 8:29 entry from the Dealbreaker liveblog of the 3/16 JPM conference call. Nuff said.
http://dealbreaker.com/2008/03/liveblogging_the_jp_morgan_cha.php