JPMorgan Chase & Co last night raised its takeover offer for Bear Stearns to about five times its original bid and struck a deal to buy nearly 40 per cent of the bank.
Under the revised deal, which all but ties up the acquisition, JPMorgan will buy 95 million newly issued Bear Stearns shares, and Bear's board agreed to vote in favour of the offer.
With those shares, JPMorgan would own 39.5 per cent of Bear Stearns and have secured the backing of Bear Chairman James Cayne, owner of a 3 per cent stake in Bear.
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 it 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 US 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.
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.
Although the new offer represents a less onerous fire-sale price, it is still 68 per cent below the March 14th closing price of Bear shares, which last year peaked at $170.23.