JPMorgan sweetens buyout deal

NEW YORK – JPMorgan Chase & Co.’s higher offer for Bear Stearns on Monday gave the investment bank control of nearly 40 percent of its ailing rival, blunting the threat that angry shareholders could scuttle the deal.

The $2.4 billion lifeline to rescue the investment house stands a strong chance of success – assuaging investors unhappy with a $2 per share offer by upping it to $10 apiece. JPMorgan has faced an outcry among Bear Stearns shareholders about the lowball offer, and faced the possibility that rival deals would begin to surface.

Most analysts said a higher bid was unlikely, but some bondholders have reportedly been buying the stock to ensure their right to vote for a deal and prevent a bankruptcy that would wipe them out. Bear Stearns’ shares – which hit $160 last year and still traded near $80 earlier in the month – nearly doubled to $11.25 on Monday.

However, for a company whose market value went from $8.3 billion to about $1 billion in a little more than a week, the revised deal was still not the outcome investors hoped for. It also didn’t help the 14,000 employees – one-third owners in Bear Stearns – who have seen the value of their stock holdings plummet and still face the potential of massive layoffs.

“Whether you got $2 or you got $10 was the difference between nothing and nothing,” said John Buckingham, chief executive of Al Frank Asset Management, which held shares of Bear Stearns. “For an employee whose retirement was 98 percent wiped out, they had nothing to lose hoping to get more money out of bankruptcy – and that behooved JPMorgan to raise the price.”

In exchange for the higher-priced offer, Bear Stearns agreed to sell 95 million newly issued shares to JPMorgan. That gave JPMorgan a 39.5 percent stake, providing an almost certain majority in any shareholder vote.

JPMorgan, the nation’s third-largest commercial bank, also renegotiated the Federal Reserve’s role in the offer. The central bank originally agreed to guarantee $30 billion of Bear Stearns assets, including risky mortgage-backed securities. JPMorgan said it will now take on the first $1 billion of losses, while the Fed backs the rest.

JPMorgan shares rose 58 cents to $45.55 on Monday.