Revised Bear Stearns Deal May 'Take the Edge Off'

A sweetened JPMorgan Chase takeover of Bear Stearns will still wipe out many jobs, but won't vaporize as much of Bear employees' savings.

The new terms of $10 per share - 0.21753 JPMorgan share in exchange for each Bear Stearns share, compared with 0.05473 in the initial deal unveiled a week ago - are aimed at mollifying Bear Stearns shareholders, according to the New York Times. But the change may also help restore a measure of stability within Bear's ranks.

Even with the sweetened price, Bear employees "are going to remain angry, but they'll be pragmatists," says Jay Gaines, chief executive of search firm Jay Gaines & Co. "Those who see an opportunity at JPMorgan ultimately will stay with it. Others will test other options.... The higher price perhaps dissipates some of the anger. It perhaps takes the edge off."

According to Gaines, the feeling in C-suites is the Federal Reserve wanted to demonstrate its muscle and commitment to stem the danger of a spreading financial crisis when Bear's liquidity suddenly dried up more than a week ago. That led the Fed to first backstop Bear's liabilities, broker its sale to JPMorgan, and open the discount window to broker-dealers along with commercial banks. But the Fed didn't want to be seen as sparing Bear's management or shareholders from the consequences of their own bad decisions.

"People are calm afterward, because the feeling is the Fed's actions are smart and they're working," says Gaines. "Opening that discount window is a very significant move that takes a lot of the extreme pressure off" other big Wall Street firms.

Beyond quintupling the price, two other facets of the revised terms are worth noting. First, Bear has agreed to sell JPMorgan 95 million new shares off the bat - a 39.5 percent stake. That all but eliminates any possibility that Bear shareholders might fail to approve the revised deal. Second, JPMorgan agreed to absorb the first $1 billion of any losses stemming from financing $30 billion of Bear's less-liquid assets. Previously, the Fed had guaranteed the full amount.

Also of note, the Times says JPMorgan Chief Executive Jamie Dimon called his counterparts at Morgan Stanley, Merrill Lynch and elsewhere last week, "pleading with them not to recruit Bear employees during the transition."