Amid stockholder discontent, JP Morgan Chase raised its bid to buy investment bank Bear Stearns Monday from $2 a share to $10 a share. A New York Times financial reporter helps explain the buyout.
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Now, the revised deal to take over Bear Stearns. Wall Street learned today that JPMorgan Chase is willing to pay $10 a share for the investment bank Bear Stearns. That is five times more than the initial offer of $2 a share announced a week ago at the prompting of the federal government.
Here to tell us why and what questions all this is raising is Andrew Ross Sorkin. He is a reporter and a columnist for the New York Times.
Andrew, good to have you with us again.
ANDREW ROSS SORKIN, New York Times:
Thank you, Judy.
Why was another deal necessary?
ANDREW ROSS SORKIN:
Well, you know, it’s funny. It looked like last week, when they originally struck this $2-a-share deal, that they had skirted bankruptcy and saved the day, if you will, financially.
And you have to understand:
This was a three-way deal, really. You know, it was between JPMorgan and Bear Stearns, but really there was another player that was very influential, and that is the Federal Reserve.
And, frankly, also, the Treasury Department, which was pushing this deal, trying to make sure that Bear Stearns remained solvent, in part so that the markets didn’t fall apart completely.
But what happened over the past week was that shareholders became irate. There was a feeling that the $2 a share was just too much of a bargain-basement price, that they weren’t getting their full and fair value. And a cloud started forming over the company as to whether the deal would be completed or whether the company itself would collapse.
And so you had a couple of things happening. You had investors who decided, “I’m not doing business with Bear Stearns because there’s too much uncertainty.” And you had employees, the assets of the company, which walked in and out of the building every single day, starting to walk out of the building and not coming back.
And so JPMorgan and the Federal Reserve decided to make this deal happen. They needed to guarantee it; they needed to create certainty. And the only way to do that at that point was to raise the price and to make sure this thing was actually going to happen.