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Monday, March 24, 2008

JPM in Talks to Increase Bear Purchase Price

by Calculated Risk on 3/24/2008 12:41:00 AM

From the NY Times: JPMorgan in Negotiations to Raise Bear Stearns Bid

JPMorgan Chase was in talks on Sunday night for a deal that would quintuple its offer for Bear Stearns, the beleaguered investment bank, in an effort to pacify angry Bear shareholders, according to people involved in the negotiations.
Under the terms being discussed, JPMorgan would pay $10 a share in stock for Bear, up from its initial offer of $2 a share ... The renegotiation, which would set a sale price of more than $1 billion ...
The actual price to JPMorgan is the cost of integration and any write-downs of Bear Stearns assets plus the share cost.

JPMorgan estimated the transaction-related costs of approximately $6 billion pretax. This included litigation, cost of de-leveraging, conforming accounting and consolidation. The $2 per share price was almost irrelevant compared to the other costs - the $2 per share was approximately $236 million.

Changing the deal to $10 per share increases the purchase cost from about $6.25 billion to about $7.25 billion, and will probably help obtain shareholder approval (a serious problem at $2 per share). This isn't a huge difference for JPMorgan, but it makes a significant difference to Bear shareholders.