NEW YORK (AP) - JPMorgan Chase & Co. increased its offer Monday
for Bear Stearns Cos. to $10 per share from a bargain-basement price of $2 per share, hoping to assuage shareholders of the ailing investment bank.
Bear Stearns shares, which had already been trading higher than the initial offer price, surged above the new bid level.
The move was clearly aimed at diffusing a backlash among Bear Stearns shareholders who felt the original deal undervalued the 85-year-old institution. JPMorgan Chase Chief Executive Jamie Dimon spent most of the week trying to woo Bear Stearns employees, who collectively own about a third of the company.
"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, "and bring more certainty for our respective shareholders, clients, and the marketplace."
The new deal values Bear Stearns at about $1.19 billion - still a fraction of what the company was worth before its sudden near-collapse earlier this month. It also includes a provision for JPMorgan to buy 95 million new Bear Stearns shares immediately, which gives it a 39.5 percent stake in the company before shareholders have even voted.
The amended offer was Dimon's attempt to ward off any competition, and quickly move on with the acquisition. The two sides also changed certain guarantees JPMorgan made related to Bear Stearns' positions.
Alan Schwartz, Bear Stearns' embattled president and chief executive, has been vilified within the company for the past week for selling out too low. The company's 14,000 employees - most of whom depended on Bear Stearns' stock as part of their retirement plans - are facing significant job cuts if the deal goes through.
He said the substantial share issuance to JPMorgan "was a necessary condition" to maintaining Bear Stearns' financial stability.
"Our board of directors believes that the amended terms provide both significantly greater value to our shareholders, many of whom are Bear Stearns employees, and enhanced coverage and certainty for our customers, counterparties, and lenders," he said in a statement.
However, the new price still pales in comparison to the $150 per share Bear Stearns was trading at just a year ago and the near-$80 the shares fetched at the beginning of this month.
"It's a recognition that there is outrage," said David Hinkel, a senior consultant at Towers Perrin who focuses on mergers and acquisitions. But, he added, "I'm not sure upping the offer from $2 to $10 will make people happy who thought the value was $90. ... There's tremendous value and wealth being lost."
The revised deal 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 "selling for $2 or $10 doesn't really make a difference."
The housing collapse and credit crunch spurred record-high home foreclosures and led financial companies to rack up multibillion losses in complex mortgage investments that turned sour. As credit problems spread, financial institutions became increasingly wary of lending. The situation has caused businesses and consumers to hunker down.
The new agreement also calls for the Federal Reserve - which helped broker the emergency deal to save Bear Stearns from failure - to provide a $30 billion term loan with portfolio assets put up as collateral. Those assets will be held by a newly created company managed by BlackRock Inc.
If any part of the portfolio defaults, JPMorgan will be on the hook to cover the first $1 billion in losses. As the assets are paid off, the Fed will receive principal plus any gains.
The Fed said the action is being taken with the support of the Treasury Department to "bolster market liquidity and promote orderly market functioning."
Bear shares had been much higher than its deal price last week in anticipation of a new buyout agreement. The stock surged on Monday, rising $7.23 to $13.24 after the new agreement was unveiled. JPMorgan shares also rose, adding $1.18, or 2.6 percent, to $47.15.
AP Business Writer Madlen Read contributed to this report.
(Copyright 2008 by The Associated Press. All Rights Reserved.)