JPMorgan Chase hiked its offer Monday for Bear Stearns to 10 dollars per share, or over one billion dollars, quintupling a fire-sale price agreed on a week earlier for the distressed investment bank.
JPMorgan Chase's increased offer comes after some Bear Stearns shareholders had angrily criticized an initial offer for the Wall Street bank and brokerage which valued it at a paltry two dollars per share or 236 million dollars.
The new offer dramatically hiked the price announced March 9 in a deal approved by the Federal Reserve to avert a feared collapse of Bear Stearns which had faced a cash crunch due to soured mortgage investments.
Some analysts had pointed out that Bear Stearns' corporate headquarters in New York alone, aside from its other business assets, was worth around one billion dollars.
The boards of directors of both banks approved the amended agreement -- which is five times the value of the original offer -- according to a joint statement issued shortly after the stock market opened for trading.
In a separate statement, the Federal Reserve Bank of New York said it would now provide slightly less financing to underpin the deal, amounting to 29 billion dollars instead of an originally planned 30 billion dollars.
Under the plan, the Fed will release 29 billion dollars in taxpayer funds to help support the takeover in return for 30 billion dollars worth of Bear Stearns assets, including ailing mortgage-backed securities.
The portfolio of distressed Bear Stearns' assets will be managed by BlackRock Financial Management on behalf of the Fed which will accrue any gains from the portfolio.
JPMorgan Chase has agreed to bear the first one billion dollar in any losses associated with the portfolio.
"We believe the amended terms are fair to all sides and reflect the value and risks of the Bear Stearns franchise," said Jamie Dimon, JPMorgan Chase's chairman and chief executive.
The new deal was announced as fears mounted that a significant number of Bear Stearns shareholders, including the bank's employees, would seek to block a deal valuing the bank at just two dollars a share.
Many employees faced losing significant sums on their investments in the bank if the deal had gone through at just two dollars a share. Bear Stearns shares were trading at well over 100 dollars last year, but plummeted sharply as its financial woes increased in recent months.
Its stock was trading up 94 percent at 11.58 dollars in the wake of the new deal. JPMorgan Chase's stock was up 3.4 percent at 47.57 dollars amid wider market gains.
Under the revised terms, each share of Bear Stearns common stock would be exchanged for 0.21753 shares of JPMorgan Chase common stock, up from 0.05473 shares as had orginally been proposed last Sunday.
All the members of Bear Stearns board have indicated that they intend to vote their shares in favor of the revised takeover.
The US central bank approved the original takeover terms last Sunday when the deal was first announced following a week in which it was feared that Bear Stearns was close to collapsing.
Bear Steans' finances almost evaporated just over a week ago after rival banks stopped trading with it, fearing it was on the verge of collapse due to mounting losses on mortgage investments and related credit woes.
Dimon said he hoped the newly revised deal would give more "certainty" to both banks shareholders, clients and the financial markets. He also expressed hope that the deal would be closed promptly.
"Our board of directors believes that the amended terms provide both significantly greater value to our shareholders, many of whom are Bear Stearns employees, and enhanced coverage and certainty for our customers, counterparties, and lenders," said Alan Schwartz, Bear Stearns' president and chief executive.
