Why Bear’s not out of the woods yet

BEAR STEARNS

Shareholders’ litigation could still go to full trial

Since its sudden acquisition by JPMorgan in March, US investment bank Bear Stearns has racked up a series of disputes with the likes of Barclays Capital. The latest courtroom battle is hot news.

Last week (11 August) The Lawyer was at the New York State Supreme Court for the latest Bear Stearns ­litigation, which sees a group of ­former shareholders accusing the bank’s directors and JPMorgan of a breach of fiduciary duty for allowing the acquisition to go ahead.

Cadwalader Wickersham & Taft ­partner Greg Markel, who is ­representing Bear Stearns’ board of directors, told the court: “Truly extraordinary circumstances are what occurred and are at stake in the lawsuit. This isn’t a contest between a couple of people vying for corporate control. It’s not a hostile tender offer.”

JPMorgan’s buyout of Bear Stearns brought an end to a longstanding Cadwalader client relationship. ­Cadwalader first got to know the bank when Dennis Block defected to the firm from Weil Gotshal & Manges in 1998. He had a long relationship with Bear Stearns, having advised its board and directors for years.

In the current case, Markel was joined in court by Sullivan & Cromwell partner Vince DiBlasi, who is also acting for Bear Stearns’ directors.

Wachtell Lipton Rosen & Katz partner Marc Wolinsky is representing JPMorgan, while Bear Stearns’ shareholders have turned to Wolf Haldenstein Adler Freeman & Herz partner Daniel Krasner.

Wachtell took a lead role on JPMorgan’s acquisition of Bear Stearns, with partners Edward ­Herlihy and Nicholas Demmo ­acting for the bank, while Skadden Arps Slate Meagher & Flom partner Peter Atkins advised Bear Stearns.

Krasner argued that the shareholders were shortchanged when control of Bear Stearns was handed to JPMorgan with little negotiation or shareholder consideration.

In court, Krasner said: “Bear turned the keys over to JPMorgan and the Bear Stearns shareholder vote was sold to JPMorgan. There could have been an opportunity for other banks to come in and perhaps make another offer for Bear Stearns.”

JPMorgan disputes the alleged control placed on Bear Stearns during the time of the merger, while Cadwalader’s Markel argued on behalf of Bear Stearns’ directors that rigorous negotiation took place.

“Bear Stearns was in crisis. The board met 12 times in 11 days and tried to come up with a solution to the crisis,” says Markel. “It’s wrong to say that we didn’t negotiate on the terms of the merger – there was intense negotiation with JPMorgan.”

Justice Herman Cahn is yet to conclude whether a summary judgment will be granted. If not, Markel, Wolinskey, DiBlasi and Krasner will be battling it out in a full trial to ­determine whether Bear Stearns and JPMorgan failed to honour their ­fiduciary duties during the merger.

The case is separate from Bear Stearns’ ongoing litigation with ­Barclays, in which Linklaters New York litigation head Larry Byrne is representing the UK bank. Barclays claims Bear Stearns lied about the performance of two of its hedge funds, which collapsed last summer.

As revealed by The Lawyer earlier this year (23 June), JPMorgan ditched Linklaters from its list of preferred advisers following a row over the magic circle firm’s role in suing Bear Stearns on behalf of Barclays.

Although Linklaters was understood to have explored the possibility of quitting the suit against Bear Stearns, such an action would have contravened New York bar rules.

Heller left in limbo after merger with bakers collapses

The much-anticipated merger between Baker & McKenzie and Heller Ehrman has fallen through and, following a string of defections, Heller is now left considering its next move.

The West Coast firm’s chairman Matt Larrabee informed the partnership of the collapsed merger talks in a voicemail last week (11 August), which suggested that another deal could be in the offing.

In June this year (2 June) Larrabee told The Lawyer that a merger was an option for the firm, but with Bakers now out of the picture there is growing scepticism about Heller’s next move.

“Heller is perceived as a sinking ship,” says one US recruiter. “Baker & McKenzie already rescued one sunken ship in Coudert Brothers. It’s not clear how the acquisition has worked out, but even though Heller isn’t insolvent like Coudert was, Baker & McKenzie is determined that it doesn’t want to go through a similar exercise.”

Bakers chairman John Conroy remains tight-lipped about the merger talks, stressing that it is firm policy never to talk publicly about such issues. However, Conroy confirms that Bakers remains in discussions with a number of firms.

For Heller, 2007 and 2008 have both been characterised by partner departures, with 25 partners leaving last year and more than 20 exiting so far this year. These include Washington DC head Geoff Aranow, who defected to Bingham McCutchen with a three-partner team last month.

“Heller needs a merger, but it’s hard to see which other firms would want to merge,” says a New York recruiter. “The firm still has a good presence in California. That could be something that would attract potential merger candidates. Without that appeal I can’t see how Heller will be able to go down the merger route with other firms.”