Shareholders of New York-based Bear Stearns will get stock in JPMorgan equivalent to about $2 a share, compared with $30 at the close on March 14, the two companies said in a statement today. The U.S. Federal Reserve will provide financing for the transaction, including support for as much as $30 billion of Bear Stearns's ``less-liquid assets.''
JPMorgan Chief Executive Officer Jamie Dimon had the upper hand in negotiations after coming to the smaller firm's rescue last week with a cash infusion engineered by the Fed. Bear Stearns's CEO, Alan Schwartz, faced the prospect of bankruptcy as clients pulled $17 billion in two days last week and creditors stopped renewing loans.
The bank will give investors 0.05473 shares of its common stock for every one share of Bear Stearns stock they own. Including shares in an employee-incentive plan, the purchase price would be as high as $270 million. JPMorgan may not buy those shares.
Bear Stearns's sale to JPMorgan caps an eight-month slide in the company's fortunes that began last July with the collapse of two of its hedge funds. Those failures sparked a wider market concern that called into doubt the value of any asset linked to the mortgage market, the biggest business at Bear Stearns, which has 14,000 employees.
Without a resolution this weekend, the situation would probably have continued to deteriorate when markets resumed trading tomorrow, according to analysts and investors including Cambiar Investors LLC's Brian Barish. Even with a deal, the value placed on Bear Stearns raised questions about share prices for the rest of Wall Street.
The Fed's rescue attempt last week failed to avert a crisis of confidence among Bear Stearns's customers and shareholders, who drove the stock down a record 47 percent after the cash infusion was announced.
Bear Stearns's profit exceeded $2 billion in 2006, yet the price JPMorgan is paying is about one quarter the value of the securities firm's headquarters building in midtown Manhattan. The 1.2 million-square-foot, 45-story structure built in 2001 is worth about $1.2 billion, based on the average $1,000 per- square-foot that comparable office space in the city is currently fetching.