JP Morgan increases offer for stricken Bear Stearns

JP Morgan increased its offer for stricken investment bank rival Bear Stearns yesterday after reportedly coming under intense shareholder pressure.

The bank had initially offered just $2 per share for Bear Stearns, which has suffered as a result of the sub-prime housing market collapse and subsequent liquidity crisis, but yesterday increased the offer to $10 a share valuing Bear Stearns at $1.4bn.

JP Morgan and Bear Stearns have also entered into a share purchase agreement under which JPMorgan will purchase 95 million newly issued shares of Bear Stearns, equivalent to 39.5 per cent, also at $10 per share.

The purchase of the 95 million shares is expected to be completed by about April 8th, 2008.

The boards of both companies have approved the amended agreement and the purchase agreement. JP Morgan has also agreed to guarantee Bear Stearns' borrowings from the Federal Reserve Bank.

Jamie Dimon, chairman and chief executive of JPMorgan, said: "We believe the amended terms are fair to all sides and reflect the value and risks of the Bear Stearns franchise 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."

However, there have been reports that JP Morgan only amended its offer for Bear Stearns after shareholders threatened a “no vote and litigation” over the original $2 per share offer.

According to The Times this morning, Bear Stearns is able to sell up to a 40 per cent stake in itself without shareholder approval under the law of Delaware under which both companies operate. What this also means is JP Morgan, having immediately acquired 39.5 per cent of Bear Stearns through the issuance of new shares, only needs the support of 10.5 per cent of current shareholders to finalise the deal.

Bear Stearns’ board will also own around 3 per cent after the new issue.