NEW YORK — In a step that gives it a potentially priceless entry into Asian financial markets, the investment firm Bear, Stearns & Co. said Wednesday that it has agreed to allow one of Hong Kong's leading trading houses to acquire 20% of its stock.
The buyer is Jardine Matheson Holdings Ltd., which traces its origins to the opium trade of the 19th Century and today boasts of worldwide holdings in the insurance, securities and real estate businesses. Through its 46%-owned Jardine Strategic Holdings unit, Jardines will spend $391 million to acquire its stake in Bear Stearns.
Officers of Bear Stearns, which has grown during the past 10 or 15 years from a modest commission house to one of the 10 largest investment firms on Wall Street, said the arrangement will help the firm's fledgling effort to expand its investment banking and brokerage business in the Far East.
"Yesterday, an awful lot of people in Asia didn't know the name Bear Stearns," said Michael E. Tennenbaum, a Bear Stearns director and the firm's mergers and acquisitions chief on the West Coast. "Today, there's a 1 million percent improvement in our visibility in that part of the world."
Other top Bear Stearns executives painted the acquisition as a deal designed to immediately benefit shareholders rather than the firm itself. The purchase, said Bear Stearns Chairman Alan C. Greenberg, allows shareholders "to realize part of the value of their investment now at a premium to the market price and also affords the opportunity for the balance of their investment to be enhanced by the longer-term benefits that we expect to accrue from our relationship."
For its part, Jardines acquires a significant stake in one of the most consistently profitable U.S. investment firms, as well as an opportunity to move nearly $400 million of its capital out of Hong Kong before the British colony reverts to ownership by the People's Republic of China in 1997.
A key executive of Jardines, which has said it hopes to reduce the share of its revenue derived from Hong Kong to 50% from 75%, minimized the political motivation of the deal, however.
"Frankly, if we were really seriously concerned about the political situation, we wouldn't be keeping 50% of our business in Hong Kong," Brian Powers, managing director (or, in U.S. terms, chief executive) of Jardines, said in an interview.
No Capital Contribution
Instead, he said, the firm needed an overseas outlet for its spending because acquisition targets in Hong Kong are scarce. "Even if we wanted to spend $400 million in Hong Kong, we couldn't do it," he said.
Unlike other recent Far Eastern investments in U.S. securities houses--including a $500-million investment in Goldman, Sachs & Co. last year by Japan's Sumitomo Bank--the Jardines involvement in Bear Stearns will not, at least in the near term, include a contribution to the U.S. firm's capital. Bear Stearns ranks ninth among securities firms with about $1.4 billion in capital, which appears to be adequate for now to compete in the capital-intensive investment business.
Instead, Jardines will undertake a tender offer for 20% of the common stock of Bear Stearns Cos., the corporate parent of the investment firm, at $23 a share, as well as an offer for 70,000 shares of preferred stock, convertible into roughly 10 shares each of common, at $228.72 per share. The preferred issue is held largely by members of the firm.
Bear, Stearns & Co., the investment firm partnership that currently owns 49.3% of the parent's shares, will tender at least 20% of its holdings to Jardines. As a result of the offer, the proportion of stock held by the partnership, officers and directors, and members of the firm will fall to well below 50% from 56%.
Jardines agreed to limit its investment in Bear Stearns to 24.9% or less for three years and to 35% or less for two years after that, except with the agreement of Bear Stearns management. The Hong Kong institution will also get three seats on the Bear Stearns board, which will be expanded to 29 from 26 members.
Bear Stearns Cos. shares closed Wednesday at $20 in composite New York Stock Exchange trading, up 25 cents. It had run as high as $21.50 earlier in the day.
Officers of the firm said they were first told of Jardines' interest in buying a large stake about seven weeks ago, when they were approached by New York investment banker James D. Wolfensohn.
The two firms entered "long and hard negotiations" over the tender price, said Bear Stearns Chief Operating Officer Alvin H. Einbender, and the U.S. firm sent a delegation to Hong Kong two weeks ago to investigate Jardines' reputation and strike an agreement. The deal was approved by the partners and board of Bear Stearns at early Wednesday and is expected to be completed next month.
Einbender and Powers said the two firms have not worked out any specific joint ventures in the United States or Asia. Bear Stearns, however, does have a small investment banking office in Hong Kong and recently opened a representative office in Tokyo.