JP Morgan Offering $15-$20 A Share for Bear Stearns

Discussion in 'Wall St. News' started by Cdntrader, Mar 16, 2008.

  1. JP Morgan Offering $15-$20 A Share for Bear Stearns JP Morgan Chase is offering to buy Bear Stearns for between $15 and $20 a share, CNBC has learned. Bear's board is currently meeting to discuss the proposal

    JP Morgan Chase is offering to buy troubled investment bank Bear Stearns for between $15 and $20 a share, CNBC has learned.
    Bear Stearns

    Bear's board is currently meeting to discuss the proposal, which based on the 118 million shares outstanding, would be valued at between $1.8 billion and $2.4 billion.

    A deal in principle could be announced Sunday night, although the agreement would still need shareholder approval.

    Here's what makes this a tricky situation: without shareholder approval, there is no real deal, so other banks and clients may be reluctant to deal with Bear on Monday unless it's part of a well capitalized JP Morgan.

    Because of this, most executives inside Bear believe the Federal Reserve and Treasury will play some role in making sure there is a backstop if the shareholder approval isnt reached.

    Of course, the deal itself could fall apart at the last minute, which would mean Bear would have to find another buyer, possibly JC Flowers.

    An offer of $20 or less would be well below Bear's closing stock price of $30.85 on Friday, which was already down 47% for the day. As one senior Bear executive--who like most of the senior team is paid and continues to hold Bear stock--puts it: "based on the information i'm getting, lets just say I wont be retiring early."

    A JP Morgan spokeswoman could not be reached for comment.

    On Friday Bear Stearns Bear Stearns, the fifth largest U.S. investment bank, said a cash crunch forced it to turn to the Federal Reserve and JPMorgan JPMorgan Chase & CoJPM
    for emergency funds, intensifying fears of a widening global credit crisis and driving its shares down as much as 50 percent. It also stepped up efforts to find a buyer.

    On the same day S&P lowered its long-term counterparty credit rating on Bear to "BBB" from "A," and it placed long-and short term ratings on credit watch with negative implications.

    Because of that S&P downgrade, bankers came to the conclusion that a deal must be done by Monday morning because no one on the street will trade or lend to Bear Stearns, which is rated a notch above junk bond levels. If the downgrade hadn't happened, Bear management would have had more time to work the Street for a deal, sources said.

    As reported earlier, Bear Steans department heads met with officials of JP Morgan and JC Flowers on Saturday afternoon to give an overview of Bear's business divisions, including headcount and profit and loss positions.

    The deal will likely lead to massive layoffs at Bear as JP Morgan consolidates businesses. But Bear isnt alone.

    Sources tell CNBC that CS First Boston will be cutting jobs this week in its investment banking department and big cuts are looming at Merrill Lynch Merrill Lynch & Co where middle managers are bracing for cuts of 10 percent across the board. Also sources say Lehman Bothers Lehman Brothers Holdings Inc will likely be in for turbulence given its own holdings of risky commercial real estate bonds.

    Bear, however, will dominate headlines on Monday. Aside from the financial fallout of a major firm disintegrating, there will likely be massive legal issues.

    Executives inside Bear are bracing for major lawsuits from investors, and not just over the public comments made by the CEO Allen Schwartz and CFO Sam Molinaro to CNBC last week where they sought to calm the markets about Bear's financial status. There also is worry about lawsuits claiming general mismanagement of the firm by top executives, like Chairman Jimmy Cayne and others .

    The biggest loser in all of this are the 14,000 employees of Bear. Employees own close to 25 percent of the firm, meaning top execs net worth has been nearly destroyed in recent months. And if the sale price is in the $15 to $20 a share range, these employees will be left with next to nothing.
  2. Bear Stearns Closes in on Deal
    To Sell Itself to J.P. Morgan
    March 16, 2008 5:22 p.m.

    Bear Stearns Cos. was closing in on a deal Sunday afternoon to sell itself to J.P. Morgan Chase & Co., as worries deepened that the financial crisis of confidence could spread if Bear failed to find a buyer by Monday morning.

    People familiar with the discussions said all sides were pushing hard to complete an agreement before financial markets in Asia open for Monday trading. "None of these things is done until they're done," Treasury Department spokeswoman Michele Davis said Sunday afternoon. "But I think everyone's expectation is sometime in the early evening hopefully" the deal will be done.

    Terms of the deal were still being hammered out Sunday afternoon. Reflecting the dire situation at Bear, the company is likely to fetch considerably less on a per-share basis than its stock price of $30 in New York Stock Exchange composite trading Friday at 4 p.m. Last year, the shares hit $170.

    One stumbling point appeared to be the amount of risk that J.P. Morgan would absorb in any type of transaction. While J.P. Morgan is eager to snap up some of Bear Stearns assets -- such as its prime brokerage business that caters to hedge funds -- Chief Executive Officer James Dimon was reluctant to pursue the deal without certain assurances that would protect his firm's exposure, said people familiar with the matter.

    Despite the emergency funding from J.P. Morgan and the Federal Reserve that was announced Friday and gives Bear access to cash for an initial period of 28 days, the clock is ticking against the 85-year-old company. Regulators, bankers and investors are concerned that the firm could plummet even further when markets open Monday. A continued exodus by parties that Bear trades with could even cause the investment bank to collapse.

    Federal regulators also are trying to prevent Bear's crisis from mushrooming into a systemic threat to the stability of financial markets and other securities firm, for which confidence is essential to their ongoing operations. Unwinding Bear also would be a nightmare because it trades with nearly every firm on Wall Street.

    In an interview with George Stephanopoulos on ABC's "This Week," Treasury Secretary Henry Paulson said he has been following the negotiations closely but couldn't predict if Bear Stearns would find a buyer. "I've been on the phone for a couple of days straight, throughout the weekend," he said. "But people are going to need to look and see what -- and I'm not going to project right now what that outcome of that situation is."

    On several occasions over the weekend, Mr. Paulson spoke about the Bear negotiations with Federal Reserve Board Chairman Ben Bernanke and New York Fed Bank President Timothy Geithner.

    A price substantially below Friday's close could value Bear at just a tiny fraction of the market cap reached at its all-time peak in early 2007. Terms likely will factor in the value of Bear's Madison Avenue headquarters, which could be valued at around $1.2 billion based on going market rates. That could make Bear's banking franchise worth roughly $1 billion -- a pittance for a firm that was regularly making $1 billion to $2 billion in net income during the middle of the decade.

    Through the weekend, Bear Stearns bankers were summoned to the company's headquarters on Madison Avenue, where they were told to prepare lists of ongoing deals and business relationships. Representatives from prospective buyers circulated through conference rooms, with J.P. Morgan executives asking questions of Bear's senior people. A separate bidding group, including J.C. Flowers & Co. and Kohlberg Kravis Roberts & Co., also was in the mix, said a person familiar with the discussions.

    People briefed on the talks describe them as very fragile, meaning that they could culminate in a deal or very well fall apart. The final price paid could also be in flux.

    Bear also has been preparing for the possibility of a bankruptcy filing, with that as the likeliest scenario if an acquisition by J.P. Morgan falls apart, according to a person familiar with the situation. Such a filing might even occur before financial markets in Asia open for Monday trading.

    A takeover agreement, which still would require formal approval by the Federal Reserve, also would signal a stunning, crushing end for Bear Stearns. It has been one of Wall Street's best-known firms, surviving swoons that rivals could not. But Bear was savaged the mortgage meltdown.

    Whatever the outcome of the ongoing discussions, there is likely to be a tense market opening in the U.S. on Monday, as investors worry that the run-on-the-bank-type retreat by worried Bear customers last week could spread to other firms. On Sunday, Mr. Paulson, the Treasury secretary, said in a TV interview that the government "would do what it takes" to protect the integrity of the financial system.

    Any deal would all but wipe out Bear Stearns shareholders, whose shares have not traded below $20 since 1995. The pain would be most acute for Bear's own employees, who were seeped in a culture of firm ownership -- and own about a third of the outstanding shares.

    Over the weekend, some Bear employees were hoping a foreign bank would emerge as the winning suitor, since that might mean fewer job cuts than by a domestic buyer. But those prospects dwindled, leaving J.P. Morgan in the prime position to acquire Bear.

    Over time, Bear's misfortune could bear fruit for J.P. Morgan. Bear's investment-banking unit -- which underwrites stocks and bonds and advises on mergers -- and its fixed-income and capital-markets trading businesses, have been badly bruised by the credit crunch but still have some value.

    Likely even more valuable are Bear's clearing unit, which settles trades and also services and lends to hedge funds, and an investment-advisory business catering to customers having a high net worth. Both of those operations have suffered from withdrawals in recent days.

    The likely sale of Bear Stearns is the latest in the cascading mortgage-related blows that began last summer and have resulted in staggering losses and write-downs on Wall Street, the ouster of CEOs and an epidemic of worry that the financial system faces even more turmoil.

    On Friday, Bear sought and received emergency funding backed by the federal government. Both the Fed and J.P Morgan stepped in to keep Bear afloat following a severe cash crunch as investors moved to pull assets from the firm.

    In stepping in, the Fed was trying to move aggressively to prevent Bear's crisis from spreading to the broader economy. The lifeline gave Bear access to cash for an initial period of 28 days -- but it was widely believed Bear would be sold within days to stop it from going under.

    The Fed's unusual intervention was motivated by a concern that a rapid and disorderly failure of Bear would wreak havoc on the markets in which Bear is an intermediary, particularly the huge and important repo market.

    Bear risked defaulting on extensive "repo" loans, in which it pledges securities as collateral for overnight loans from money-market funds. If that happened, other securities dealers would see access to repo loans become more restrictive. The pledged securities behind those loans could be dumped in a fire sale, deepening the plunge in securities prices.

    As a result, a priority for regulators in any deal for Bear or its parts is to minimize the risk to the financial system. That suggests that regulators want those counterparties furthest removed from Bear itself, for those parties to know immediately where they stand in any deal, and that a buyer have sufficient financial strength to reassure those counterparties.

    The Fed's loan facility is for up to 28 days. Other terms haven't been disclosed. The Fed's leverage is unclear, though it does have the power of moral suasion -- or trying to convince many individual parties that acting for the greater good is in their own collective self-interest.
  3. Tragic. The Chairman poo-pooed overtures at $125/share not too long ago. Looks like Bear--known for trading prowess--wasn't good at trading it own stock.

  4. My question is how do you trade this opportunity?
  5. I don't think you should try to predict this one. This story could be looked at 50% bullish (resolution to bsc) or 50% bearish (very low price, more to come). Too uncertain, IMO

  6. fts dwn euro yen gapped higher..guess that glass is viewed half empty:)
  7. Hope Dow gaps down 1000.
  8. Daal


    you dont. think there is just too much inside stuff going on to know where stock will go
  9. ElCubano


    you can most certainly play this....just dont trade BSC :p
  10. 383 Madison is worth 1.3B alone. It looks like the deal is done at $18.
    #10     Mar 16, 2008