Morgan bows to pressure over Bear Stearns

Published on Monday 24 March 2008 20:56

JAMIE Dimon has bowed to pressure from shareholders in Bear Stearns, quintupling JP Morgan's bid for the stricken Wall Street investment bank to $10 a share last night.

Dimon, JP Morgan's chairman and chief executive, had originally agreed to buy the fifth-largest Wall Street investment bank at a knock-down price of just $2 a share last week.

But as soon as a $2 a share rescue deal was announced last Monday, Bear Stearns investors, led by its largest investor, British billionaire Joe Lewis, began looking for an alternative bid and pressuring JP Morgan to increase its price. Lewis, whose Tavistock group owns more than 100 companies, including Tottenham Hotspur FC, faced a loss of $1.2 billion after buying Bear Stearns shares in the days leading up to its near collapse, taking his stake to around 10 per cent.

He said last week he would take "whatever action necessary" to protect his investment, including encouraging JP Morgan and third parties to seek an alternative transaction.

Under the revised deal, which values Bear Stearns at around $1.1bn, JP Morgan has also agreed to bear the risks associated with the first $1bn of losses associated with Bear Stearns Assets, with the US Federal Reserve assuming the risk of the remainder through a $29bn finance facility.

The revised deal also makes a counter-offer less likely, with JP Morgan agreeing to buy 90 million new Bear Stearns shares, giving it almost 40 per cent of the company.

Shares in Bear Stearns immediately rose by more than 100 per cent in early Wall Street trading yesterday, before easing slightly to close last night at $11.38, up almost 80 per cent.

Dimon said his company believed the amended terms "are fair to all sides and reflect the value and risks of the Bear Stearns franchise".

The original deal announced last week valued Bear Stearns at around $240 million, or 2 per cent of its value prior to rumours emerging that it was in trouble, and just one 15th of its market cap when the deal was announced.

News of the revised offer lifted Wall Street yesterday with the Dow closing up 187.32 points, or 1.52 per cent, at 12,548.64