JPMorgan Chase & Co. is acquiring The Bear Stearns Companies Inc, America’s fifth largest bank, with the boards of directors of both companies having unanimously approved the transaction.
The transaction will be a stock-for-stock exchange. JPMorgan Chase will exchange 0.05473 shares of JPMorgan Chase common stock per one share of Bear Stearns stock. Based on the closing price of 15 March 15 2008, the transaction would have a value of approximately $2 per share – a discount of 94% on last week when the bank was valued at $140 billion.
Effective immediately, JPMorgan Chase is guaranteeing the trading obligations of Bear Stearns and its subsidiaries and is providing management oversight for its operations. Other than shareholder approval, the closing is not subject to any material conditions. The transaction is expected to have an expedited close by the end of the calendar second quarter 2008. The Federal Reserve, the Office of the Comptroller of the Currency (OCC) and other federal agencies have given all necessary approvals.
In addition to the financing the Federal Reserve ordinarily provides through its Discount Window, the Fed will provide special financing in connection with this transaction. The Fed has agreed to fund up to $30 billion of Bear Stearns’ less liquid assets.
“JPMorgan Chase stands behind Bear Stearns. Bear Stearns’ clients and counterparties should feel secure that JPMorgan is guaranteeing Bear Stearns’ counterparty risk. We welcome their clients, counterparties and employees to our firm, and we are glad to be their partner. This transaction will provide good long-term value for JPMorgan Chase shareholders. This acquisition meets our key criteria: we are taking reasonable risk, we have built in an appropriate margin for error, it strengthens our business, and we have a clear ability to execute,” says Jamie Dimon, chairman and CEOfficer, JPMorgan Chase.
“The past week has been an incredibly difficult time for Bear Stearns. This transaction represents the best outcome for all of our constituencies based upon the current circumstances. I am incredibly proud of our employees and believe they will continue to add tremendous value to the new enterprise,” adds Alan Schwartz, president and CEO, Bear Stearns.
The transaction is expected to be ultimately accretive to JPMorgan Chase’s annual earnings.
“This transaction helps us fill out some of the gaps in our franchise with manageable overlap. We know the Bear Stearns leadership team well and look forward to working with them to bring our two companies together,” says Steve Black, co-CEO, JPMorgan Investment Bank.
“Acquiring Bear Stearns enables us to obtain an attractive set of businesses. After conducting due diligence, we’re comfortable with the quality of Bear Stearns’ business, and are pleased to have them as part of our firm,” says Bill Winters, co-CEO, JPMorgan Investment Bank.
“JPMorgan Chase’s management team has a strong track record of effective merger integration. We will work closely in the coming weeks with Bear Stearns’ clients and management to execute the transaction quickly,” adds Heidi Miller, CEO of JPMorgan Treasury & Securities Services business.
Lehman Brothers saw its shares fall by 14% on Friday 14 March after reports emerged that it had sought $2 billion in fresh financing, and the bank is expected to reveal credit-related losses of up to $1 billion in quartely earnings tomorrow. Goldman Sachs has, so far, profited from the credit crunch, but is set to disclose a $3 billion writedown as a result of the declining value of its stake in the Industrial & Commercial Bank of China.