JPMorgan Chase & Co raised its takeover offer for Bear Stearns Cos on Monday to about five times its original bid and struck a deal to buy nearly 40 percent of the bank, all but locking up the controversial acquisition.
Under the revised deal, JPMorgan will buy 95 million newly issued Bear Stearns shares and Bear's board agreed to vote in favor of the offer. With those shares, JPMorgan would own 39.5 percent of Bear Stearns and have secured the backing of Bear Chairman James Cayne, owner of a 3 percent stake in Bear.
The new offer valued Bear Stearns at about $2.1 billion, compared with $236 million under the original deal. The new deal, which has financial backing from the Federal Reserve, is likely to raise concerns that the U.S. government is prepared to help rescue Wall Street bankers even as millions of home owners face the possibility of foreclosure.
The Federal Reserve Bank of New York is providing $29 billion in special financing for the deal and will take control of a $30 billion portfolio of Bear's less liquid assets. "This action is being taken by the Federal Reserve, with the support of the Treasury Department, to bolster market liquidity and promote orderly market functioning," the New York Fed said in a statement.
JPMorgan, facing pressure from disgruntled Bear shareholders such as British billionaire Joe Lewis, raised its offer to about $10 a share in stock from its original bid on March 16 of $2 per share for the 85-year-old Wall Street investment bank, representing a boon to short-term traders who jumped in last week when the shares plunged.
While the new offer represents a less onerous fire-sale price, it is still 68 percent below the March 14 closing price of Bear shares of $30.85, and more than 90 percent below Bear's all time peak level of over $170.
Bear, recently ranked as the fifth-largest U.S. investment bank, collapsed as large subprime mortgage losses and falling confidence in the company prompted a run on the bank. Bear shares surged 76 percent to close at $11.25, as some investors speculated on an even higher offer. JPMorgan shares, which have climbed more than 25 percent since the deal was announced, rose 1.3 percent to close at $46.55.
The perception of a done deal is important for JPMorgan to encourage banks and other customers that it's safe to do business again with Bear. To that end, JPMorgan tightened its guaranty of Bear's liabilities. It agreed to back all of Bear's prime brokerage contracts and all of its short- and long-term loans.
If shareholders vote down the deal, the guaranty will run another 120 days unless extended. The guaranty expires if Bear's board recommends another deal. The stronger guaranty and the increased probability of a deal prompted credit rating agency Standard & Poor's to raise its rating on Bear Stearns. JPMorgan expects to complete the purchase of the new Bear shares by April 8. A date for Bear's shareholders to vote on the deal has not been set.
BlackRock Inc will manage the $30 billion portfolio of Bear's less liquid assets under guidelines established by the New York Fed. Those guidelines are "designed to minimize disruption to financial markets and maximize recovery value," the New York Fed said.
Story contributed by Reuters: Read More
Under the revised deal, JPMorgan will buy 95 million newly issued Bear Stearns shares and Bear's board agreed to vote in favor of the offer. With those shares, JPMorgan would own 39.5 percent of Bear Stearns and have secured the backing of Bear Chairman James Cayne, owner of a 3 percent stake in Bear.
The new offer valued Bear Stearns at about $2.1 billion, compared with $236 million under the original deal. The new deal, which has financial backing from the Federal Reserve, is likely to raise concerns that the U.S. government is prepared to help rescue Wall Street bankers even as millions of home owners face the possibility of foreclosure.
The Federal Reserve Bank of New York is providing $29 billion in special financing for the deal and will take control of a $30 billion portfolio of Bear's less liquid assets. "This action is being taken by the Federal Reserve, with the support of the Treasury Department, to bolster market liquidity and promote orderly market functioning," the New York Fed said in a statement.
JPMorgan, facing pressure from disgruntled Bear shareholders such as British billionaire Joe Lewis, raised its offer to about $10 a share in stock from its original bid on March 16 of $2 per share for the 85-year-old Wall Street investment bank, representing a boon to short-term traders who jumped in last week when the shares plunged.
While the new offer represents a less onerous fire-sale price, it is still 68 percent below the March 14 closing price of Bear shares of $30.85, and more than 90 percent below Bear's all time peak level of over $170.
Bear, recently ranked as the fifth-largest U.S. investment bank, collapsed as large subprime mortgage losses and falling confidence in the company prompted a run on the bank. Bear shares surged 76 percent to close at $11.25, as some investors speculated on an even higher offer. JPMorgan shares, which have climbed more than 25 percent since the deal was announced, rose 1.3 percent to close at $46.55.
The perception of a done deal is important for JPMorgan to encourage banks and other customers that it's safe to do business again with Bear. To that end, JPMorgan tightened its guaranty of Bear's liabilities. It agreed to back all of Bear's prime brokerage contracts and all of its short- and long-term loans.
If shareholders vote down the deal, the guaranty will run another 120 days unless extended. The guaranty expires if Bear's board recommends another deal. The stronger guaranty and the increased probability of a deal prompted credit rating agency Standard & Poor's to raise its rating on Bear Stearns. JPMorgan expects to complete the purchase of the new Bear shares by April 8. A date for Bear's shareholders to vote on the deal has not been set.
BlackRock Inc will manage the $30 billion portfolio of Bear's less liquid assets under guidelines established by the New York Fed. Those guidelines are "designed to minimize disruption to financial markets and maximize recovery value," the New York Fed said.
Story contributed by Reuters: Read More
