JPMorgan Chase & Co was in talks to quintuple its offer to buy Bear Stearns Cos to US$10 per share in an effort to pacify angry Bear Stearns shareholders, the New York Times said yesterday.
JPMorgan's original agreement on March 16 to pay US$2 per share for Bear Stearns was widely considered a fire-sale price for the 85-year-old Wall Street investment bank. Bear Stearns collapsed in a liquidity crisis after suffering large subprime mortgage losses and falling confidence in dealing with the company.
The original agreement had won support of federal regulators, but the US Federal Reserve is now balking at the new price, the newspaper said, citing people involved in the talks.
As a result, the renegotiated merger might be postponed or collapse, it said.
A US$10 per share offer would value Bear Stearns at more than US$1 billion. That price, however, is still less than one-third of where the stock traded on March 14, the last trading day before the original merger was announced.
It is also less than 10 percent of where the stock traded for much of last year.
Representatives of Bear Stearns, JPMorgan and the Fed were not immediately available for comment.
Jamie Dimon, JPMorgan's chief executive, grew convinced the merger was in jeopardy after spending much of the last week taking calls from indignant shareholders, the newspaper said, citing people involved in the talks.
Among these shareholders was the British entrepreneur Joseph Lewis, who spent more than US$1 billion on some 12.1 million Bear Stearns shares, including some as recently as March 13.
Last week, Lewis said he would take whatever action was needed to protect his investment, and may encourage Bear Stearns and third parties to pursue other transactions.
Bear Stearns shares closed on Thursday at US$6.39, reflecting investor expectations that JPMorgan might raise its bid, or another suitor might offer a sweetened price. JPMorgan shares closed at US$45.97.
In an attempt to speed majority shareholder approval, Bear Stearns' board was trying to authorize the sale of 39.5 percent of the firm to JPMorgan, the NYT said.
State law in Delaware, where JPMorgan and Bear Stearns are incorporated, allows a company to sell up to 40 percent without shareholder approval.
A spokeswoman for JPMorgan declined to comment Sunday night, the NYT said.
A Bear Stearns representative could not be reached.
A spokesman for the Federal Reserve would not comment on the central bank's involvement in the negotiations, but denied it had directed the original sale price, the newspaper said.
Citing people involved in the talks, the newspaper said the central bank originally directed JPMorgan to pay no more than US$2 per share to assure that it would not appear that Bear Stearns shareholders were being rescued.
As part of the original transaction, the Fed also extended a US$30 billion credit line to JPMorgan to finance Bear Stearns' most illiquid assets.
JPMorgan was in talks on Sunday night with the Fed to assume the first US$1 billion of losses on Bear Stearns assets before the US$30 billion cushion kicks in, the newspaper said.
The original agreement called for JPMorgan to swap 0.05473 of its shares for each Bear Stearns share.
Some large Bear Stearns shareholders have considered opposing the merger to send the company into bankruptcy, where they might hope to get more than US$2 per share from creditors, the newspaper said.
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