Interesting account of an unusual conference call on Sunday evening, in which executives from JPMorgan Chase quickly walked investors and analysts through their $236m acquisition of Bear Stearns, says DealBook on Monday.
The half-hour call, announced with just one hour’s notice, was aimed at explaining how JPMorgan could justify buying its 85-year-old rival at a 93 per cent discount.
“This is a good economic transaction for JPMorgan shareholders,” Michael Cavanaugh, the firm’s chief financial officer said in kicking off the call. Cavanaugh was joined by the firm’s co-heads of investment banking, Steven Black in New York and William T. Winters in London. (One person not on the call: JPMorgan’s chairman and chief executive, James Dimon.)
Cavanaugh, according to DealBook, stressed the importance of the additions that the deal will bring to the banking giant, all bought at what he termed a “reasonable price”. JPMorgan, he noted, has a no material adverse change clause, an escape hatch that allows a buyer to walk away from a deal.
He added that JPMorgan expects to have a Tier-1 capital ratio of 8 per cent at the closing of the deal, expected to take place by the end of the second quarter.
In a moment that has now been picked up by bloggers around the world, the brief call was broken up as a Bear Stearns shareholder sought an explanation of why he would be better off approving this transaction rather than seeing Bear file for a Chapter 11 bankruptcy. “The JPMorgan executives demurred,” reports DealBook, “instead referring the investor to Bear Stearns executives for an explanation.
The shareholder declared he would vote against the deal.
Undeterred, Cavanaugh and Black later said JPMorgan felt comfortable in doing the deal despite the short due-diligence process. “We’ve known Bear Stearns for a long time,” Cavanaugh said.
Black followed by recounting a little of the run-up to the deal: JPMorgan sent a team of 200 people to pore through Bear Stearns’ books for two days.
“We certainly anticipate the market will act differently than it did on Thursday and Friday,” he said.
And Cavanaugh asserted: “We’re highly confident in our ability to execute here. It makes a lot of strategic sense…The financial logic is compelling.”
Not according to Felix Salmon at Portfolio.com, who writes that one thing which was clear from the conference call is that JPMorgan seems to be “taking Bear Stearns at its word” when it comes to the $84 (ish) book value: CFO Michael Cavanagh said he was “very comfortable with the levels at which Bear Stearns has marked its positions”.
The discount to book is a function of having to do a complex deal within the space of one weekend, as well as the difficulties of digesting a major investment bank during a period of extreme market volatility. Oh, and the fact that the chances of any other bidders coming along are remote.
