JPMorgan Chase acquires Bear Stearns for $2 per share

17 March 2008

Mumbai: In a deal that has sent tremors through markets around the world, commercial bank JPMorgan Chase announced a deal to acquire beleaguered investment banker Bear Stearns for a mere $2 a share, less a tenth of the firm's market price of $30 per share on Friday 14 March.

Bear Stearns was grappling with a run on the bank as its investors were so fearful about the future that they couldn't make even overnight loans to the nation's fifth-largest investment firm.

Almost driven to bankruptcy by this run on the bank, the deal will see JPMorgan and the Federal Reserve bail out mammoth trading obligations of Bear Stearns in a rescue plan that is geared more towards stemming a financial crises (See: US Fed bails out Bear Sterns through JPMorgan Chase).

As the race was all about completing the takeover agreement before the  opening of the Asian financial markets on Monday morning, the widespread fear was that if Bear Stearns was unable to find a buyer, panic in those markets could spread globally.

JPMorgan  agreed to pay around $270 million in stock for Bear Stearns, which had run up huge losses on its investments linked to mortgages. Bear Stearns shareholders would feel rather short-changed with the deal, as JPMorgan's deal includes the bank's 14,000 employees, and Bear Stearns's soaring Madison Avenue headquarters.

The deal is an unparalleled discount to the firm's closing price of $30 on Friday. A week prior, Bear Stearns traded at above $60, and around a year ago it was at over $150. On Friday, Bear Stearns executives had told analysts and investors that the firm's book value, -  its assets less its liabilities,  was still at a minimum of $80 a share.