M&A

Is $2 Too Cheap for Bear? How about $10?

It would still be a bargain-basement sale to JPMorgan Chase, but the proposed fivefold boost could smoothe the way.
Stephen TaubMarch 24, 2008

The Bear Stearns Cos. fire sale may not be a $2-a-share broker after all. JPMorgan Chase officially agreed to increase the price to make it a $10-a-share fire sale.

The fivefold increase had been in the buzz since the New York Times reported on Monday morning that a deal had been close on Sunday, and others picked up on the details. The Associated Press reported later in the morning that the offer had been made.

The original price offered, $236 million, now will top $1 billion.

The increased offer by JPMorgan Chase was seen as a bid to win over recalcitrant Bear Stearns holders, who had stood to block the deal at $2. Under the original arrangment of a week ago, the Federal Reserve agreed to provide as much as $30 billion to guarantee Bear’s most toxic assets in order to get the deal done, the Times said.

Bear’s stock had traded all last week well above the agreed-on $2 price, triggering a heated debate over whether shareholders and employees would successfully pressure JPMorgan to up its price tag.

Of course, just two weeks ago, the stock was trading around $67 and topped $170 a year ago.

However, the Times pointed out in Monday’s edition that JPMorgan Chase was simultaneously negotiating with the Fed to assume the first $1 billion in losses on Bear assets before the Fed’s guarantee kicks in. The paper also said that JPMorgan and Bear Stearns had decided to renegotiate the deal because of a so-called mistake in the original contract, which reportedly was rushed in order to close the deal before the Asian markets opened last Monday.

According to the paper, one sentence that was “inadvertently included” requires JPMorgan to guarantee Bear Stearns’s trades even if shareholders voted down the deal. The Times noted that the provision could allow Bear’s shareholders to seek a higher bid while still forcing JPMorgan to honor its guarantee.

According to the report, when JPMorgan CEO James Dimon discovered this clause, the apoplectic executive called his lawyers at Wachtell, Lipton, Rosen & Katz to determine whether the sentence could be modified.

Meanwhile, published reports last week had stated that UK billionaire Joseph Lewis and the brokerage’s largest shareholder, and former Bear Stearns CEO James “Jimmy” Cayne approached private equity firms and banks in an attempt to smoke out a higher offer.

Stay tuned.

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