Bear Stearns And Citic Securities Modify Share-Swap

US investment bank, Bear Stearns and China’s largest securities firm, Citic Securities, are planning to renegotiate on an agreement to swap shares due to a decline in both companies stock prices.

Sources state that senior executives from Bear and Citic have entered into equivalent modification of the deal signed last October, which would mean in the end, both companies would have a larger stake in the other, than in the original agreement.

The original agreement was such that Citic would pay $1bn for securities that would translate to roughly 6% of Bear Stearns, who would in time pay Citic $1bn for approximately 2% of the Chinese company.

At this stage, the deal is yet to attain regulatory approval in China, however if it does go ahead it will find Citic Securities (the brokerage arm of the Chinese cabinet controlled China Citic Group) in the position of being the largest single investor in the US investment bank.

Analysts state that Bear could face criticism for making a deal that would entail a foreign investment group holding such a large stake in a US company. Lawmakers have showed concern in the growing investments from sovereign wealth funds from both the Middle East and Asia.

The US could soon see higher regulations for foreign investments, with Senator Charles Schumer, the chairman of the joint economic committee, expressing his concern.

The official Chinese news service, Xinhua, have reported that Citic will have as much as 9.9% of Bear Stearns at the conclusion of the deal, while Bear will have approximately 7.5% of Citic

No intention of changing the $1bn investment scale has been announced, though it does still need to be approved by regulators in China.

The change in the amount of shares to be swapped is due to both companies experiencing a dramatic drop in share prices since last October. Bear has dropped from $120 to $80, whilst Citic has lowered by 40% to Rmb71.

According to sources, Citic was the one to approach Bear with the idea of renegotiation the shares, following the drop in share prices last November.

The spokesperson for Citic stated they had not been informed of any new negotiations and the spokesperson in Japan for Bear has yet to make a comment.

Analysts believe the adjustment to larger stakes in each other to be equitable and indicative of the drop in share prices both companies have experienced.

However, some close to the negotiation have stated that there are in fact no alterations on the cards, and that the speculation was being propelled by competition of the companies in a bid to get regulators concerned about the deal. Although prices are not as high as they were for either company, the matter of share stakes will only be revisited if it benefits share holders of both companies, the source stated.

Story link: Bear Stearns And Citic Securities Modify Share-Swap