JPMorgan to buy Bear Stearns for $236.2M US in stock

JPMorgan to buy Bear Stearns for $236.2M US in stock
Sunday, March 16, 2008 The Associated Press

JPMorgan Chase & Co. said Sunday it will buy rival Bear Stearns at the bargain price of $2 US a share in a move aimed at slowing the spreading panic in U.S. financial markets over tightening credit.

JPMorgan said the $236.2 million US all-stock deal has received the required approvals from the federal government and the Federal Reserve.

Bear Stearns' headquarters overlooks the flag for neighbouring JPMorgan Chase headquarters in New York City on Friday.
(Mark Lennihan/AP) The Fed will provide special financing to JPMorgan Chase in connection with the deal. The central bank has agreed to fund up to $30 billion US of Bear Stearns's less-liquid assets.

The Fed also said Sunday it has approved a cut in its lending rate to banks to 3.25 per cent from 3.50 per cent and created another lending facility for big investment banks.

The central bank's official meeting is on Tuesday. Before the emergency move to lower the discount rate, which is the rate at which banks lend each other money, the Fed was widely expected to again cut its headline rate by as much as a full point to two per cent.

The announcement from both the Fed and JPMorgan comes ahead of what some analysts expected to be a brutal day for global stocks. Even before the announcements, New Zealand's markets opened drastically lower before beginning to recover after the deal was unveiled.

A collapse of Bear Stearns could have created a further crisis of confidence in world financial markets amid a deepening credit crunch. JPMorgan's acquisition of Bear Stearns represents roughly one per cent of what the investment bank was worth just 16 days ago.

The deal represented a 93.3-per-cent discount to Bear Stearns's market capitalization as of Friday, and roughly a 98.8-per-cent discount to its book value as of Feb. 29.

"The past week has been an incredibly difficult time for Bear Stearns," the firm's chief executive officer Alan Schwartz in a statement. "This represents the best outcome for all of our constituencies based upon the current circumstances."