J.P. Morgan Quintuples Bid to Seal Bear Deal
By ROBIN SIDEL and KATE KELLY
March 25, 2008; Page A1
J.P. Morgan Chase & Co. chief James Dimon saved his bank’s troubled shotgun marriage to Bear Stearns Cos. by quintupling his bid to about $10 a share, effectively admitting he misjudged how Bear Stearns shareholders and trading partners would react to the original deal.
| The new bid shows that J.P. Morgan is willing to cave in order to appease shareholders, WSJ’s Dennis K. Berman says. |
The new bid of $1.2 billion comes close to sealing the acquisition because it gives J.P. Morgan a 39.5% stake in Bear Stearns right away, before the transaction is complete. Bear Stearns’s board of directors also has pledged to vote in favor of the deal. That means Mr. Dimon needs support from only a few other shareholders to win approval, barring any legal challenge.
“The issues were mounting all week,” Mr. Dimon said Monday in an interview. “We took another crack at it to get it just right.”
The sweetened terms for Bear Stearns shareholders revived the debate about the federal government’s role in the deal. The Federal Reserve stepped in a week ago to cover $30 billion of potential Bear Stearns losses — a figure revised to $29 billion Monday as the Fed sought to limit its exposure and lessen any appearance of a bailout.
![[James Dimon]](http://s.wsj.net/public/resources/images/HC-GH346_Dimon_20070304213908.jpg)
Officials justified the intervention by saying the financial system’s stability was at risk, and Bear Stearns shareholders were taking a painful blow. Now the blow is somewhat less painful, although J.P. Morgan’s new offer is still far below where Bear shares were trading two weeks ago.
Mr. Dimon, regarded as one of Wall Street’s shrewdest deal makers, stepped in to buy Bear Stearns at a bargain price of $2 a share after the firm plunged into a cash crunch earlier this month and was faced with a possible bankruptcy filing.
But he ran into problems when Bear Stearns shareholders and employees bitterly protested the deal. Some employees had sunk their life savings into Bear Stearns stock, which now seemed nearly worthless. J.P. Morgan faced the prospect of losing Bear Stearns’s most valued employees.
And Bear Stearns’s trading partners worried that the deal would fall apart. Some of them continued to recoil from doing business with Bear Stearns last week. Under the original terms, J.P. Morgan’s promise to back Bear Stearns’s trading book would have disappeared if another suitor stepped forward. Although that scenario was unlikely, it contributed to concern about Bear Stearns’s viability.
J.P. Morgan has “an incentive to get the deal done quickly, get the profits and get it handled,” says Bill Miller, manager of Legg Mason Inc.’s Legg Mason Value Trust mutual fund, one of the biggest investors in Bear Stearns.
Mr. Dimon, 52 years old, said the initial price was fair, but he acknowledged feeling anxiety about the fierce opposition and the retreat by Bear Stearns customers, even though J.P. Morgan agreed to back trades with the investment bank.
In a phone call with Mr. Dimon on March 17, Bear Stearns Chairman James Cayne criticized the $2-a-share price even though he had voted in favor of the deal. Bear Stearns Chief Executive Alan Schwartz privately told people the company had been “mugged,” someone familiar with his conversations said.
Gallows humor set in last week as emailed advertisements for T-shirts assailing the transaction made the rounds on Wall Street. One featured a bearskin rug and a caption that said, “Jamie Dimon stole my company and all I got was this lousy T-shirt.”
The revised deal, which was negotiated over the weekend and announced Monday morning, values Bear Stearns at about $1.2 billion, or $10.13 a share. Bear Stearns’s board of directors approved the deal Monday morning.
Seeking to lock up the deal, the two companies agreed to give J.P. Morgan a 39.5% stake in Bear Stearns through its purchase of 95 million new shares at the deal price. That dilutes stakes held by existing shareholders, including some who might continue to oppose the transaction.
