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.