- The Washington Times - Tuesday, March 25, 2008

From staff and wire reports

NEW YORK — JPMorgan Chase & Co. increased its offer yesterday for Bear Stearns Cos. to $10 per share from a bargain-basement price of $2 per share, hoping to assuage shareholders of the ailing investment bank.

Bear Stearns shares, which had already been trading higher than the initial offer price, surged above the new bid’s level.

The move was clearly aimed at diffusing a backlash among Bear Stearns shareholders who felt the original deal undervalued the 85-year-old institution. JPMorgan Chase Chief Executive Jamie Dimon spent most of the week trying to woo Bear Stearns employees, who collectively own about a third of the company.

“We believe the amended terms are fair to all sides and reflect the value and risks of the Bear Stearns franchise,” he said, “and bring more certainty for our respective shareholders, clients and the marketplace.”

The new deal values Bear Stearns at about $1.19 billion — still a fraction of what the company was worth before its sudden near-collapse earlier this month. It includes a provision for JPMorgan to buy 95 million new Bear Stearns shares immediately, which gives it a 39.5 percent stake in the company before shareholders have even voted.

The amended offer was Mr. Dimon’s attempt to ward off any competition and quickly move on with the acquisition. The two sides also changed certain guarantees JPMorgan made related to Bear Stearns’ positions.

Alan Schwartz, Bear Stearns’ embattled chief executive, has been vilified within the company for the past week for selling out too low. The 14,000 employees — most of whom depended on Bear Stearns’ stock for their retirement — are facing significant job cuts if the deal goes through.

Mr. Schwartz said the substantial share issuance to JPMorgan necessary to maintain Bear Stearns’ financial stability.

The new price still pales in comparison to the $150 per share Bear Stearns was trading at just a year ago and the near-$80 the shares fetched at the beginning of this month.

“It’s a recognition that there is outrage,” said David Hinkel, a consultant at Towers Perrin.

But, Mr. Hinkel added, “I’m not sure upping the offer from $2 to $10 will make people happy who thought the value was $90. … There’s tremendous value and wealth being lost.”

Major institutional investors in Bear Stearns said they sold off their shares as the company’s stock value plummeted.

“We sold out in early January,” said Shelley Peterson, spokeswoman for Janus Capital.

Morgan Stanley, formerly a large investor in Bear Stearns, had reduced its shares to less than 0.1 percent of its mutual fund holdings by March 14.

“We believe that the Bear Stearns news demonstrates the value in holding a well-diversified mutual fund,” said Amy Chain, spokeswoman for The Vanguard Group of Valley Forge, Pa. The company holds a small amount of Bear Stearns in its funds.

The revised deal is still the target of shareholder lawsuits.

The new agreement also calls for the Federal Reserve — which helped broker the emergency deal to save Bear Stearns from failure — to provide a $30 billion term loan with portfolio assets put up as collateral. Those assets will be held by a newly created company managed by BlackRock Inc.

If any part of the portfolio defaults, JPMorgan will be on the hook to cover the first $1 billion in losses. As the assets are paid off, the Fed will receive principal plus any gains.

Bear shares had been much higher than its deal price last week in anticipation of a new buyout agreement. Yesterday, the shares jumped $3.42, or 57 percent, to $9.38, while JPMorgan rose 58 cents to $46.55.

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