Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

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Monday, March 17, 2008

JP Morgan Chase Will Acquire Bear Stearns and Immediately Guarantee Trading Obligations

Bear Stearns agreed to be acquired by JP Morgan Chase in a stock for stock exchange that values Bear Stearns stock at about $2 per share, or $236 million.  As recently as Friday, Bear Stearns had a market capitalization of about $3.5 billion.  The Federal Reserve Bank will provide as much as $30 billion in financing for Bear Stearns' less liquid assets.  Effective immediately JP Morgan will guarantee Bear Stearns' trading obligations and provide management oversight of its operations.  As the press has frequently noted in the past few days, Bear Stearns refused to participate in the 1998 bailout of Long-Term Capital Management that the Federal Reserve Bank of New York brokered with Wall St. firms.

The deal is subject to shareholder approval, and in a conference call last night, one Bear Stearns shareholder asked why this deal was better than Chapter 11.  About one-third of Bear Stearns shares are held by employees.  JPMorgan Chase Press Release; WSJ, J.P. Morgan Buys Bear in Fire Sale, As Fed Widens Credit to Avert Crisis; NYTimes, JP Morgan Pays $2 a Share for Bear Stearns.

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