JPMorgan raises Bear Stearns bid, grabs stake

By Chris Reiter

NEW YORK (Reuters) - JPMorgan Chase & Co raised its takeover offer for Bear Stearns Cos on Monday to about five times its original bid and struck a deal to buy nearly 40 percent of the bank, all but locking up the controversial acquisition.

Under the revised deal, JPMorgan will buy 95 million newly issued Bear Stearns shares and Bear's board agreed to vote in favor of the offer. With those shares, JPMorgan would own 39.5 percent of Bear Stearns and have secured the backing of Bear Chairman James Cayne, owner of a 3 percent stake in Bear.

"It looks like JPMorgan has this deal sewn up right now," said John Augustine, chief investment strategist with Fifth Third Investment Advisors.

The new offer valued Bear Stearns at about $2.1 billion, compared with $236 million under the original deal.

Additionally, JPMorgan would also be on the hook for the first $1 billion in losses stemming from Bear Stearns' less liquid assets, and would set aside $6 billion to cover severance, litigation and other transaction-related costs.

The new deal, which has financial backing from the Federal Reserve, is likely to raise concerns that the U.S. government is prepared to help rescue Wall Street bankers even as millions of home owners face the possibility of foreclosure.

The Federal Reserve Bank of New York is providing $29 billion in special financing for the deal and will take control of a $30 billion portfolio of Bear's less liquid assets.

"This action is being taken by the Federal Reserve, with the support of the Treasury Department, to bolster market liquidity and promote orderly market functioning," the New York Fed said in a statement.

Rather than a bailout of Bear, the Fed's action "more closely resembles the torpedoing of a sinking ship" to remove a hazard to others and avert a broader crisis, said David Wyss, chief economist of Standard & Poor's.

"The bank is dead," he said.

UNDER PRESSURE

JPMorgan, facing pressure from disgruntled Bear shareholders such as British billionaire Joe Lewis, raised its offer to about $10 a share in stock from its original bid on March 16 of $2 per share for the 85-year-old Wall Street investment bank, representing a boon to short-term traders who jumped in last week when the shares plunged.

While the new offer represents a less onerous fire-sale price, it is still 68 percent below the March 14 closing price of Bear shares of $30.85, and more than 90 percent below Bear's all time peak level of over $170.

Bear, recently ranked as the fifth-largest U.S. investment bank, collapsed as large subprime mortgage losses and falling confidence in the company prompted a run on the bank.

"We believe the amended terms are fair to all sides and reflect the value and risks of the Bear Stearns franchise," Jamie Dimon, JPMorgan's chairman and chief executive, said in a statement. "We look forward to a prompt closing."