In a move which would to some extent ruffle the feathers of the shareholders Bears Stearns, J.P.Morgan had substantially raised its offer price from $2 to $10 a share for acquiring it. As a result, the price of Bears Stearns which was quoted around 6.89 Dollar a share has risen to $12.85.
The new deal values Bears Stearns at about U.S.$1.29 billion still far below the worth of the Bank prior to its collapse on account of sub-prime crisis. It also includes a provision for for J.P.Morgan to buy 95 million new Bears Stearns shares immediately which would give it a stake of 39.5% in the company. The agreement also envisages a slightly lesser financing from Federal Reserve as J.P.Morgan would bear the first $1 billion losses linked to Bears Stearns assets. Still the Federal Reserve would have to finance the remaining $29 billion. Federal Reserve is yet to comment on this deal.
The employees of Bears Stearns collectively own about 33% of the Investment Bank. As a result, the deal to acquire it can go through only if the employees accept the terms. This is because the employees depend considerably on the stocks for their retirement plans in a situation where they are facing job cuts.
The amended offer is seen as a smart move by J.P.Morgan to ward off any competition and complete the deal as quickly as possible. This is evidenced by the fact that the shares of J.P.Morgan also rose by 96 cents to 46.93 Dolloars a share on Monday’s trading.