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JP Morgan Chase & Co. agreed Sunday to acquire Bear Stearns Cos. for $2 per share, two days after it agreed to bail out the troubled bank and speculation about a sale abounded.
Terms of the deal call for J.P. Morgan to exchange 0.05473 shares of its common stock per one Bear Stearns share, or nearly $2 per share at Friday's close, according to a statement Sunday.
Based on shares outstanding as of Feb. 16, the deal values Bear at only $236 million, the Wall Street Journal noted, adding that the bank's stock-market value was nearly $3.54 billion at the end of trade Friday. J.P. Morgan will guarantee Bear's trading obligations and those of its subsidiaries and oversee managerial operations. Subject to shareholder approval, the companies foresee an expedited close by the end of the second quarter 2008. The Fed, the Office of the Comptroller of the Currency and other regulators have granted their necessary approvals, while both companies' boards have approved the deal. The deal comes two days after J.P. Morgan and the Fed agreed to a bailout for Bear. Hammered by short-term liquidity problems, the firm's shares collapsed 47% Friday, following the bailout announcement, to $30 a share. J.P. Morgan's shares were down 4.1%, to $36.54. The plan called for J.P. Morgan to offer a 28-day secured loan to help steady Bear in exchange for an unspecified amount of collateral. The Fed agreed to backstop the loan and provide J.P. Morgan with the money through its discount window. As a securities firm, Bear had no legal access to the window, which is why J.P. Morgan was brought in to act as a conduit, a source said Friday. J.P. Morgan serves as the clearing agent for much of Bear's collateral, which means it already has a good sense of what Bear could exchange for the short-term funds. On Friday, Burnham Financial Industries Fund portfolio manager Anton Schutz told The Deal "any buyer for Bear could benefit." He said that Bear's book value -- the measure of Bear's assets, minus its liabilities -- stands at $80 a share, but that any purchase of the bank would surely be done at a price well below that. In conjunction with the J.P. Morgan deal, the Fed announced that it had lowered the discount rate -- the rate it charges for direct loans to commercial banks -- to 3.25% from 3.5%. The Fed also said that, as of Monday, it would provide funds at that rate to primary dealers -- mainly broker-dealers -- in the securitization markets. The new facility will be in place for 6 months. Borrowers will be able to put up "a broad range of investment-grade debt securities" as collateral against the loan. The facility and the discount-rate cut were "designed to bolster market liquidity and promote orderly market functioning," the Fed said in a statement. "Liquid, well-functioning markets are essential for the promotion of economic growth." The moves were announced before the Asian markets opened on Monday, the timing suggesting that regulators are very concerned about any possible panic caused by the Bear Stearns news. A Wachtell, Lipton, Rosen & Katz team led by Edward D. Herlihy advised J.P. Morgan. -- Carolyn Murphy and Vipal Monga See earlier story: Sale talk surrounds Bear Stearns Categories Deal Video
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