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Chinese Firm To Buy Big Stake In Bear Stearns
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"This groundbreaking alliance will give Bear Stearns a unique footprint in one of the world's fastest-growing economies through a strategic partnership with a premier market leader," said James E. Cayne, Bear's chairman and chief executive.
Citic Group, parent of Citic Securities, is a state-owned investment firm established in 1979 when Deng Xiaoping's government sought to attract foreign capital.
The growth of Citic Securities, whose market capitalization has quadrupled to more than $50 billion this year, reflects China's emergence as a major force in the global economy and as the ultimate potential market for foreign firms with merchandise or services to sell.
Under the agreement, Citic would invest about $1 billion in Bear Stearns by buying preferred securities that would convert to about 6 percent of the U.S. firm's shares. The deal includes options under which Citic could increase its stake to 9.9 percent.
It also calls for Bear Stearns to acquire a similar stake in Citic through a six-year convertible-debt security. Bear would also have options to buy additional shares.
Bear Stearns and Citic also would form a Hong Kong company that would offer capital-market services in Asia, including cross-border mergers and acquisitions and international offerings of Chinese companies. Each party would have a 50 percent stake in the joint venture.
Richard X. Bove, a financial-services analyst at Punk, Ziegel, said the partnership, while a good move for Bear Stearns, falls short of what investors had hoped for as Bear shares were pummeled and takeover speculation swirled in recent months.
"It's a bunt. It's not a grand slam home run," Bove said. "People are somewhat disappointed because they wanted new capital coming in. They wanted a takeover, which is less likely now."
"If the key problems are that the key mortgage business is shrinking, that the derivatives business is shrinking and the hedge fund business is shrinking, this deal does nothing to turn those things around," he said.
John Heine, a spokesman at the Securities and Exchange Commission, said the agency did not have immediate comment on the deal. Because Bear Stearns stock is publicly traded on a U.S. stock exchange, its disclosures and financial statements are reviewed by U.S. securities regulators. Bear Stearns stock closed Monday at $117.85, up 1.44, or 1.2 percent, on the New York Stock Exchange.
Staff writer Carrie Johnson and staff researcher Richard Drezen contributed to this report.
