JPMorgan Chase will pay five times as much as originally planned for its stricken rival Bear Stearns, in an attempt to pacify furious shareholders and devastated employees.
Jamie Dimon, JPMorgan chief executive, decided to raise the value of his offer from a token $2 per share to $10 after a week of pressure which included legal threats from investors and a tongue-lashing from Bear staff at his first meeting as their putative new boss.
The original deal was brokered by the Federal Reserve in an attempt to prevent the collapse of Bear Stearns triggering a full-blown banking crisis, but it immediately attracted criticism for handing Mr Dimon the assets of Wall Street's fifth biggest investment institution at too generous a price. JPMorgan shares soared 25 per cent last week as investors decided it had got a bargain, while Bear shares remained above the value of the bid, reflecting the expectation that its shareholders could vote against the deal and seek a more lucrative alternative.
Revising the terms of the deal yesterday, JPMorgan said it would quintuple the value of the offer, but it also said Bear would immediately sell it new shares that give it control over 40 per cent of the company, making it much more likely it will get a "yes" vote.
"The substantial share issuance to JPMorgan Chase was a necessary condition to obtain the full set of amended terms, which in turn were essential to maintaining Bear Stearns' financial stability," said Alan Schwartz, Bear chief executive.
JPMorgan executives are already onsite at Bear's midtown Manhattan headquarters, directing its trading operations, and a drawn-out battle for support of the deal threatened to complicate Mr Dimon's efforts to integrate Bear's prime brokerage business and other operations into the JPMorgan group.
"We believe the amended terms are fair to all sides and reflect the value and risks of the Bear Stearns franchise," Mr Dimon said, "and bring more certainty for our respective shareholders, clients, and the marketplace. We look forward to a prompt closing and being able to operate as one company."
It was unclear last night, however, whether Mr Dimon had done enough to guarantee an easy passage for the deal. Bear shares closed at $11.25, above the value of JPMorgan's all-share offer, which had risen to $10.13 as JPMorgan shares jumped again.
Bear all but collapsed when panicking clients and trading partners began to pull their business, causing a liquidity crisis. Within a matter of days, a firm that had more than $80 per share of assets on its books was unable to continue operating.
Many shareholders, including the British billionaire Joe Lewis, were furious that the JPMorgan offer did not reflect the value of Bear's assets. Mr Lewis, whose losses total $1.2bn (£604m), said he was opposed to the deal and was exploring his options, which included soliciting a rival bid or challenging the deal in the courts.
Mr Dimon, meanwhile, endured a fractious meeting with 400 Bear employees last week when many expressed their anger at the knock-down price of the takeover. Many have lost large pools of savings locked up in Bear shares. "You are acting like it's our fault," he told them at one point.
There was also an amendment to the deal between JPMorgan and the Federal Reserve, which originally promised to guarantee $30bn of Bear Stearns' riskiest assets and which prompted accusations it was bailing out a financial firm that should never have taken on such risky positions in mortgage-related derivatives and other exotic credit instruments.
JPMorgan will swap the $30bn of assets for more easily tradable securities, and the Fed will hire an outside fund manager to hold the portfolio. JPMorgan will now shoulder the first $1bn of any losses, it was agreed yesterday, while the Fed will pocket any profits.Reuse content