Bear Stearns surges on deal jockeying : US Business

NEW YORK (Reuters) - Bear Stearns Cos Inc shares surged as much as 77 percent on Tuesday, as investors speculated on the outcome of JPMorgan Chase & Co's bid to buy the storied investment bank.

Bear Stearns, which JPMorgan agreed to buy for stock in deal valued at about $2.30 a share at current prices, gained $1.10 to close at $5.91 on the New York Stock Exchange, where it had risen to as high as $8.50.

"You got your risk arbitrage traders that don't think this thing is going through, so they are bidding it up," said Jim Huguet, chief executive of Great Companies LLC, a Tampa, Florida, investment adviser. "That's purely speculation. It's not investing."

Huguet thought it was unlikely that another bidder would come forward and believed Bear Stearns would likely fail if the deal falls apart.

An options analyst said some Bear Stearns debt holders, which have interest in making sure the deal goes ahead, may be behind the stock price rise.

"There is a rumor that senior bondholders in Bear Stearns have been buying up stock, thus pushing the share price higher in a bid to force through the JPMorgan Chase bid," said Rebecca Engmann Darst, an equity options analyst at Interactive Brokers Group in Greenwich, Conn.

JPMorgan agreed on Sunday to buy Bear Stearns, which was slammed by a sudden cash crunch in an all-stock deal that valued the company -- recently ranked as the No. 5 U.S. investment bank -- at about $236 million.

"The theme in the option market is that Bear Stearns shareholders aren't going down without a fight and may contest the $2 bid that some have called derisory," Darst said.

She noted this is evident by the aggressive volume at speculative put and call strike positions in the March contract that expires on Thursday after the close.

In late afternoon trading, 164,000 puts versus 217,000 calls changed hands in Bear Stearns, two times its normal volume, according to option analytics firm Trade Alert.

"I would assume that maybe somebody is coming in for a piece of the book and that would push valuations up," said Kathy Boyle, president of Chapin Hill Advisors Inc.

Boyle, who owns Bear preferred securities and has about $100 million under management, said the deal was put together in a rush over the weekend and the parties "low-balled it."

As part of JPMorgan's offer, the Fed, which has approved the deal, agreed to provide $30 billion in special financing to fund Bear Stearns' less liquid assets.

(Reporting by Paritosh Bansal and Chris Reiter in New York and Doris Frankel in Chicago; Editing by Maureen Bavdek/Andre Grenon)

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