Drafting Errors in the Bear Stearns Merger Agreement? What a Shock!

[Update March 24, 5:30PM EDT: Some people are suggesting that there’s something fishy to the story of Wachtell’s “mistakes.” See, for example, this post at Dealbreaker, and this one on the Conglomerate Blog. On the other hand, Steven Davidoff’s analysis, at DealBook, takes the story at face value. I’ll let others who are closer to the deal figure out the story. And in any event, the parties have now amended the merger agreement.]

As David noted in the comments to my previous post on the Bear Stearns merger agreement, today’s New York Times contains a story detailing how “mistakes” in the Bear Stearns merger agreement contributed to J.P. Morgan and Bear Stearns discussing whether to reprice the deal.

Here’s the relevant bit:

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 have 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, Mr. Dimon, 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.

Why am I not surprised? As I said in my recent article on the Cerberus litigation, dysfunctional prose in M&A contracts greatly increases the likelihood of a mistake going unnoticed.

J.P. Morgan is represented by Wachtell Lipton, an M&A titan. Evidently Wachtell’s contracts are as problematic as the next guy’s, perhaps more so.

About the author

Ken Adams is the leading authority on how to say clearly whatever you want to say in a contract. He’s author of A Manual of Style for Contract Drafting, and he offers online and in-person training around the world. He’s also chief content officer of LegalSifter, Inc., a company that combines artificial intelligence and expertise to assist with review of contracts.

6 thoughts on “Drafting Errors in the Bear Stearns Merger Agreement? What a Shock!”

  1. China Law Blog: I’m acutely aware of the pressures that M&A practitioners are under. That’s all the more reason to make sure your contracts are free of the clutter and dysfunction on display in the Bear Stearns merger agreement. That agreement is a chore to read, so I can only image what it was like to work with.

    Do I know that murky contract language contributed to the apparent “mistakes”? No, but it may well have. If you want to reduce the odds of a mistake, make your contracts clearer.

    And when it comes to the quality of contract language, I don’t see any need to pussyfoot around. If the contract language of the Bear Stearns merger agreement is suboptimal, it’s not because of any time pressures. Instead, it’s because the language of the contract models used to put it together was also suboptimal.


  2. The funny thing is on the conference call Sunday night JPM mgmt were repeatedly questioned about the “guarantee” of trades and it was perfectly clear that they:

    (a) knew they were guaranteeing the trades.

    (b) knew that it was possible they’d never get the vote and the deal would break in a year.

    This is not a matter of anything “inadvertent”, this is a matter of JPM changing their mind and going back on what they agreed in writing to do.

    What a joke.


  3. Irony: an article about drafting errors that contains a drafting error.

    Am I the only one who sees a problem with the below sentence?

    “That provision could have [sic] could allow Bear’s shareholders to seek a higher bid while still forcing JPMorgan to honor its guarantee, these people said.”

    Shouldn’t it say, “could have allowed”?


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