NEW YORK - JPMorgan Chase said yesterday it will acquire rival Bear Stearns in a deal valued at $236.2 million - or $2 a share - a stunning collapse for one of the world's largest and most venerable investment banks.
The last-minute buyout was aimed at averting a Bear Stearns bankruptcy and a spreading crisis of confidence in the global financial system.
The Federal Reserve and the US government swiftly approved the all-stock deal, showing the urgency of completing the deal before world markets opened.
Bear Stearns shares closed Friday at $30 a share. At their peak, the shares traded at $159.36.
The Fed will provide special financing to JPMorgan Chase for the deal, JPMorgan Chase said. The central bank has agreed to fund up to $30 billion of Bear Stearns' less liquid assets. Risky bets on securities tied to subprime mortgages - loans given to customers with poor credit history - crippled Bear Stearns, the nations' fifth-largest investment bank.
"This is going to go down in very historic terms," said Peter Dunay, chief investment strategist for New York-based Meridian Equity Partners. "This is about credit being overextended, and how bad it is for major financial institutions and for individuals. This is why we're probably heading into a recession."
A collapse of Bear Stearns could have created a further crisis of confidence in world financial markets amid a deepening credit crunch. JPMorgan's acquisition of Bear Stearns represents roughly 1 percent of what the investment bank was worth just 16 days ago.
The deal marked a 93.3 percent discount to Bear Stearns' market capitalization as of Friday, and roughly a 98.8 percent discount to its book value as of Feb. 29.
"The past week has been an incredibly difficult time for Bear Stearns," said Bear Stearns chief executive Alan Schwartz in a statement. "This represents the best outcome for all of our constituencies based upon the current circumstances."
Wall Street analysts say the bid to rescue Bear Stearns was more than just saving one of the world's largest investments bank - it was a prop for the US economy and the global financial system. An outright collapse could cause huge losses for banks, hedge funds, and other investors to which Bear Stearns is connected.