Securities Law Prof Blog

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

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Monday, March 24, 2008

JPMorgan and Bear Amend Merger; Bear Shareholders Get More Value

JPMorgan Chase and Bear Stearns announced amendments to the merger and guaranty agreements, which are available at the Bear Stearns website.  The shares of Bear Stearns are now valued at $10 for purposes of the share exchange into JPM shares.  In addition, JPM will purchase 95 million newly issued Bear shares at that price, which will give it 39.5% ownership of the company.  While the rules of the New York Stock Exchange generally require shareholder approval prior to the issuance of securities that are convertible into more than 20% of the outstanding shares of a listed company, the NYSE's Shareholder Approval Policy provides an exception in cases where the delay involved in securing shareholder approval for the issuance would seriously jeopardize the financial viability of the listed company. The joint press release states that "In accordance with the NYSE rule providing that exception, the Audit Committee of Bear Stearns' Board of Directors has expressly approved, and the full Board of Directors has unanimously concurred with, Bear Stearns' intended use of the exception."

In addition, the JPM guaranty has been significantly expanded and clarified, and there is a Q&A at the Bear website explaining how it works.  Finally, the Fed's $30 billion special financing was amended so that JPM will bear the first $1 billion of losses associated with the Bear assets being financed and the Fed will bear the remaining $29 billion.

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