Bear Stearns shares jump 70%

New York: Bear Stearns Cos. surged almost 70 per cent in early trading on Monday in New York after JPMorgan Chase & Co. confirmed raising its takeover offer by five times for the securities firm to more than $1 billion to win support from employees and shareholders opposed to the deal.

Bear Stearns rose $4.10 to $10.06 at 8:26am. JPMorgan has agreed to increase its all-stock bid to about $10 a share from $2, and may strike a deal with Bear Stearns's board to purchase about 40 per cent of the company in a transaction that wouldn't require shareholder approval, a person with knowledge of the discussions said.

The New York Times reported the new terms earlier on Monday, citing unnamed people involved in the negotiations. The original bid, more than 90 per cent lower than the securities firm's market value at the start of the month, drew opposition from shareholders led by UK billionaire Joseph Lewis.

JPMorgan chief executive officer Jamie Dimon met with Bear Stearns employees, who own a third of the company, to seek their support last week.

Uncomfortable

The Federal Reserve, which helped engineer the takeover after customer withdrawals crippled the New York-based firm, is uncomfortable with any plan that might be perceived as an investor bail-out, the Times reported.

"If you are seeing stock values overall recover, then it would seem that because of the timing, Bear Stearns shareholders got a very raw deal," said Jay Moghe, who helps manage $160 million as the Singapore-based head of Opes Prime Asset Management Pte.

"It would look quite embarrassing to the Fed now if the situation results in there being a bidder at a higher price, seeing as they have underwritten the deal at $2."

Bear Stearns is also considering selling JPMorgan a 39.5 per cent stake, which wouldn't require shareholder approval, to help expedite the takeover, the Times said.

JPMorgan spokesman Joseph Evangelisti declined to comment. Bear Stearns spokesman Russell Sherman didn't return phone calls seeking comment.

Bear Stearns climbed 12 per cent to $5.96 on March 20 in New York on speculation JPMorgan, the third-largest US bank, might raise its bid or risk prompting rival offers.

Performance

The stock, which peaked at $171.51 last year, closed at $30 two days before chief executive officer Alan Schwartz, 58, was forced to accept JPMorgan's terms or face bankruptcy after customers and lenders abandoned the broker. The Fed agreed to provide as much as $30 billion to JPMorgan to get the deal done.

Lewis and James "Jimmy" Cayne, Bear Stearns's 74-year-old former chief executive officer, are trying to recruit investors to counter JPMorgan's offer, the New York Post reported last week.

The two have approach-ed private equity firms including J.C. Flowers & Co. and Kohlberg Kravis Roberts & Co.; banks including Barclays Plc, HSBC Holdings Plc, Credit Suisse Group and Royal Bank of Scotland Group Plc; sovereign wealth funds and China's Citic Securities Co., according to the Post.

JPMorgan may be required to guarantee Bear's trades even if shareholders vote down the takeover and seek another bidder, because of a sentence "inadvertently included" in the merger pact, the Times said.

Bear Stearns employees, directors and lawyers are prohibited from seeking an alternative transaction, according to the agreement.