NEW YORK (AP) - JPMorgan Chase & Co.'s higher
offer for Bear Stearns on Monday gave the investment bank control of nearly 40
percent of its ailing rival, blunting the threat that angry shareholders could
scuttle the deal.
The $2.4 billion lifeline to rescue the investment house stands a strong
chance of success -- assuaging investors unhappy with a $2 per share offer by
upping it to $10 apiece. JPMorgan has faced an outcry among Bear Stearns
shareholders about the lowball offer, and faced the possibility that rival deals
would begin to surface.
Most analysts said a higher bid was unlikely, but some bondholders have
reportedly been buying the stock in order to ensure their right to vote for a
deal and prevent a bankruptcy that would wipe them out. Bear Stearns' shares --
which hit $160 last year and still traded near $80 earlier in the month --
nearly doubled to $11.25 on Monday.
However, for a company whose market value went from $8.3 billion to about $1
billion in a little more than a week, the revised deal was still not the outcome
investors hoped for. It also didn't help out the 14,000 employees -- one-third
owners in Bear Stearns -- who have seen the value of their stock holdings
plummet and still face the potential of massive layoffs.
"Whether you got $2 or you got $10 was the difference between nothing and
nothing," said John Buckingham, chief executive of Al Frank Asset Management,
which held shares of Bear Stearns. "For an employee whose retirement was 98
percent wiped out, they had nothing to lose hoping to get more money out of
bankruptcy -- and that behooved JPMorgan to raise the price."
There has been outrage since the Federal Reserve tapped JPMorgan to rescue
the 85-year-old investment bank in a deal some feel was hastily arranged. The
buyout was put together over a weekend, and within a few days JPMorgan Chief
Executive Jamie Dimon was trying to rally Bear Stearns executives to his side.
In exchange for the higher-priced offer, Bear Stearns agreed to sell 95
million newly issued shares to JPMorgan. That gave JPMorgan a 39.5 percent
stake, providing an almost certain majority in any shareholder vote.
JPMorgan, the nation's third-largest commercial bank, also renegotiated the
Federal Reserve's role in the offer. The central bank originally agreed to
guarantee $30 billion of Bear Stearns assets, including risky mortgage-backed
securities. JPMorgan said it will now take on the first $1 billion of losses,
while the Fed backs the rest.
Dimon, who needs only another 10.5 percent of shareholders to approve the
takeover, appears to have outflanked any other deals. The agreement, filed with
regulators last week, prohibits Bear Stearns employees or directors from
soliciting any alternative transactions.
"We believe the amended terms are fair to all sides and reflect the value
and risks of the Bear Stearns franchise," Dimon said in a statement.
Investors agreed with his tactics, sending JPMorgan shares up 58 cents to
$45.55.
Bear Stearns shareholders, meanwhile, are expected to vote on the deal
within the next few months.
The Fed, along with the Treasury Department, has drawn criticism for bailing
out a Wall Street investment bank that many feel have been reckless amid the
credit crisis. The higher price for Bear Stearns could be uncomfortable for Fed
officials and Treasury Secretary Henry Paulson, who played a key role in the
rescue effort. The New York Fed declined to comment.
Last week, Paulson publicly defended the Fed's actions, noting that
shareholders were nearly wiped out at the original $2 per share price and argued
that such losses would discourage other companies from counting on government
help in the future.
Treasury spokeswoman Jennifer Zuccarelli said in an e-mail that "an orderly
transition of Bear Stearns is in the best interest of our financial markets. The
updated arrangements between Bear Stearns, JPMorgan and the Federal Reserve are
consistent with that goal."
JPMorgan's higher offer -- the initial price was $236 million -- comes at a
jittery time for Washington and Wall Street alike. A total collapse of Bear
Stearns would have rippled through the economy, locking up credit even tighter
and torpedoing global stock markets.
The housing collapse and credit crunch spurred record-high home foreclosures
and led financial companies to rack up multibillion losses from complex mortgage
investments that turned sour. As credit problems spread, financial institutions
became increasingly wary of lending, causing businesses and consumers to hunker
down.
Bear's financial troubles began in July, when two hedge funds it managed
nearly collapsed from big positions in securities tied to subprime mortgages.
The investment house had to bail out the funds and take possession of many of
their instruments.
The revised bid dented hopes by retail investors for another offer that
would value the company more fairly. There have been reports that billionaire
financier Joseph Lewis, one of Bear Stearns' biggest shareholders, and Chairman
and former CEO James Cayne would team up for a rival bid.
Lewis spokesman Doug McMahon didn't return a call Monday seeking comment. A
spokesman for Bear Stearns also did not return calls.
The renegotiated agreement does not eliminate the hurdles to the deal, which
is still the target of shareholder lawsuits.
Marian Rosner, a senior partner at Wolf Popper LLP, whose firm was one of
many that filed class action lawsuits against Bear Stearns on behalf of
employees, said Monday that "selling for $2 or $10 doesn't really make a
difference."
AP Business Writers Madlen Read and Stephen Bernard contributed to this
report.
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