Chase Manhattan Corp. made its bid for J.P. Morgan & Co. official on Wednesday, offering $35.6 billion in stock to unite two of the oldest U.S. banking firms.
The deal, rumored since Monday, creates a financial powerhouse that expects to be a one-stop source of financial products and advice for businesses and wealthy individuals worldwide--going head-to-head with such rivals as Citigroup, Goldman Sachs and Merrill Lynch & Co.
Each Morgan share will be exchanged for 3.7 Chase shares, valuing Morgan--now the fifth-largest U.S. bank--at $187.54 a share based on Chase's closing price on the New York Stock Exchange.
With the decline in Chase stock in recent days, however, the deal's value has been pared. Chase fell $2.13 to $50.69 on Wednesday, after sliding $4.69 on Tuesday.
Morgan's shares, which closed in after-hours trading on Tuesday at a record $185.50, eased $4 to $181.50 on Wednesday.
By combining Chase's roster of corporate clients with Morgan's stock underwriting and asset management, the new company--to be called J.P. Morgan Chase & Co.--expects to be more profitable than if the two firms stayed apart.
Chase Chief Executive William B. Harrison Jr. will become CEO of the merged firm, and Morgan CEO Douglas Warner III will be chairman.
"There's no corner of the world where we can't get a deal done," Harrison said of the combined operation. "This is a complete platform."
For Chase--already the nation's third-largest bank behind Citigroup and Bank of America--buying Morgan will be the biggest of several purchases it has made in the past year to shift from traditional banking to securities and money management. It bought Silicon Valley banking powerhouse Hambrecht & Quist last year.
The merged firm will have about $660 billion in assets and far-flung businesses advising corporations on mergers and stock offerings, as well as one of the largest commercial and consumer banking operations in the United States.
Morgan has long been rumored to be a takeover target, in part because it had fallen behind larger rivals in the rankings of investment banking and stock underwriting.
To allay investors' fears about the cost of the deal, Chase promised Wednesday to save $1.5 billion through cost-cutting and efficiencies, and to generate about $400 million in incremental revenues by knitting its lending, trading and investment bank units together with Morgan's booming money management and derivatives businesses.
To get the projected cost savings, the bank will cut jobs, although Harrison said the company hadn't determined the number of firings. Some analysts estimated job losses could total about 10,000.
Morgan's roots go back 150 years. It became the nation's most influential financial institution late in the 19th century, as J. Pierpont Morgan raised money to build the U.S. railroad system and effectively became the country's central banker.
Chase, whose ancestral firm was founded in 1799, merged with John D. Rockefeller's Equitable Trust in 1930; the oil baron's grandson, David Rockefeller, was chairman from 1961 through 1981. When Chemical Bank, which had previously bought Manufacturers Hanover Trust, acquired Chase in 1996, it kept the Chase name.
J. Pierpont Morgan had considered John D. Rockefeller "crude," while Rockefeller, the wealthier of the two, saw Morgan as "pompous and overbearing," author Ron Chernow wrote in his book, "The House of Morgan."
Bloomberg News and Reuters were used in compiling this report.