J.P. Morgan Chase & Co. has officially revised its bid for The Bear Stearns Cos. Inc., and revised the support agreement with the Federal Reserve Bank of New York.
Under the revised terms announced today, each share of Bear Stearns common stock would be exchanged for 0.21753 shares of J.P. Morgan Chase common stock (up from 0.05473 shares), reflecting an implied value of approximately US$10 per share of Bear Stearns common stock based on the closing price of J.P. Morgan Chase common stock. The original deal valued Bear Stearns at just US$2 per share.
In addition, J.P. Morgan Chase and Bear Stearns entered into a share purchase agreement under which J.P. Morgan Chase will purchase 95 million newly issued shares of Bear Stearns common stock, or 39.5% of the outstanding Bear Stearns common stock at the same price as provided in the amended merger agreement. The purchase of the 95 million shares is expected to be completed on or about April 8.
The boards of directors of both companies have approved the amended agreement and the purchase agreement. All of the members of the Bear Stearns board have indicated that they intend to vote their shares in favour of the merger.
The J.P. Morgan Chase guaranty of Bear Stearns’ trading obligations has also been clarified and expanded. J.P. Morgan Chase has also agreed to guarantee Bear Stearns’ borrowings from the New York Fed.
The New York Fed’s US$30 billion special financing associated with the transaction has also been amended so that J.P. Morgan Chase will bear the first US$1 billion of any losses associated with the Bear Stearns assets being financed and the Fed will fund the remaining US$29 billion on a non-recourse basis to J.P. Morgan Chase.
“We believe the amended terms are fair to all sides and reflect the value and risks of the Bear Stearns franchise,” said Jamie Dimon, chairman and CEO of J.P. Morgan Chase, “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.”
“Our board of directors believes that the amended terms provide both significantly greater value to our shareholders, many of whom are Bear Stearns employees, and enhanced coverage and certainty for our customers, counterparties, and lenders,” said Alan Schwartz, president and CEO of Bear Stearns. “The substantial share issuance to J.P. Morgan Chase was a necessary condition to obtain the full set of amended terms, which in turn, were essential to maintaining Bear Stearns’ financial stability.”