Handicapping Bear’s shareholder vote

Against all odds, Bear Stearns (BSC) shares were actually up Tuesday morning. The stock plunged 84% Monday in the wake of JPMorgan Chase’s (JPM) agreement to buy the cash-strapped brokerage firm for $2 a share. Yet Bear shares never dropped that low and closed at $4.81, a full 140% above the merger’s indicated value. Compounding the strangeness, the stock rose further Tuesday morning, to $5.10. Why?

Maybe some shareholders believe a better price is within reach, in spite of the fact that Bear would surely be bankrupt without JPMorgan’s offer. Alternatively, perhaps investors don’t have anything to gain by approving the deal at hand. The key seems to be that the merger must win shareholder approval to be completed, though a date for the vote hasn’t been set.

A vote could be contentious. A man identifying himself as an individual investor in Bear Stearns said on JPMorgan’s conference call Sunday night he would vote against the deal, prompting JPMorgan execs to advise him to take up that complaint with Bear Stearns management. Andrew Clavell writes that many Bear Stearns investors - such as billionaire investor Joseph Lewis and Bear Stearn employees, who own a third of the stock - have no reason to vote for the deal, having already lost everything they plowed into the company. “The deal works for everyone except those who get to vote on it,” he writes at his Financial Crookery blog. “Is it too late for shareholders to remind us?”

At Information Arbitrage, Roger Ehrenberg believes it is. He sees no alternatives that will preserve any value for shareholders. JPMorgan’s decision to pay out even the paltry $2 a share, he notes, was dependent on the Fed agreeing to backstop $30 billion in risky Bear Stearns debt positions - a generous offer the Fed won’t be making to all comers. “If there weren’t already lots of opportunities to lose money on this stock,” he writes, “somehow certain investors are gluttons for punishment.”