Morgan races to acquire Bear before Asian markets open

By Dennis K. Berman, Susanne Craig, and Kate Kelly
The Wall Street Journal
Sunday, March 16, 2008

Bear Stearns Cos. was closing in on a deal Sunday afternoon to sell itself to J.P. Morgan Chase & Co., as worries deepened that the financial crisis of confidence could spread if Bear failed to find a buyer by Monday morning.

People familiar with the discussions said all sides were pushing hard to complete an agreement before financial markets in Asia open for Monday trading.

"None of these things is done until they're done," Treasury Department spokeswoman Michele Davis said Sunday afternoon. "But I think everyone's expectation is some time in the early evening hopefully" the deal will be done.

While terms of the deal were still being hammered out Sunday afternoon, Bear Stearns could fetch roughly $2.2 billion, or slightly less than $20 a share, said people familiar with the talks. Reflecting the dire situation at Bear, that valuation is one-third lower than the company's stock price of $30 in New York Stock Exchange composite trading Friday at 4 p.m. Last year the shares hit $170.

One stumbling point appeared to be the amount of risk that J.P. Morgan would absorb in any type of transaction. While J.P. Morgan is eager to snap up some of Bear Stearns assets -- such as its prime brokerage business that caters to hedge funds -- Chief Executive Officer James Dimon was reluctant to pursue the deal without certain assurances that would protect his firm's exposure, said people familiar with the matter.

Despite the emergency funding from J.P. Morgan and the Federal Reserve that was announced Friday and gives Bear access to cash for an initial period of 28 days, the clock is ticking against the 85-year-old company. Regulators, bankers, and investors are concerned that the firm could plummet even further when markets open Monday. A continued exodus by parties that Bear trades with could even cause the investment bank to collapse.

Federal regulators also are trying to prevent Bear's crisis from mushrooming into a systemic threat to the stability of financial markets and other securities firm, for which confidence is essential to their ongoing operations. Unwinding Bear also would be a nightmare because it trades with nearly every firm on Wall Street.

In an interview with George Stephanopoulos on ABC's "This Week," Treasury Secretary Henry Paulson said he has been following the negotiations closely but couldn't predict if Bear Stearns would find a buyer. "I've been on the phone for a couple of days straight, throughout the weekend," he said. "But people are going to need to look and see what -- and I'm not going to project right now what that outcome of that situation is."

On several occasions over the weekend, Mr. Paulson spoke about the Bear negotiations with Federal Reserve Board Chairman Ben Bernanke and New York Fed Bank President Timothy Geithner.

A price of slightly less than $20 a share would value Bear at $2.24 billion, roughly 10% of the market cap reached at its all-time peak in early 2007. The price also factors in the value of Bear's Madison Avenue headquarters, which could be valued at around $1.2 billion based on going market rates. That would make Bear's banking franchise worth a little over $1 billion -- a pittance for a firm that was regularly making $1 billion to $2 billion in net income during the middle of the decade.

Through the weekend, Bear Stearns bankers were summoned to the company's headquarters on Madison Avenue, where they were told to prepare lists of ongoing deals and business relationships. Representatives from prospective buyers circulated through conference rooms, with J.P. Morgan executives asking questions of Bear's senior people. A separate bidding group, including J.C. Flowers & Co. and Kohlberg Kravis Roberts & Co., also was in the mix, said a person familiar with the discussions.

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