Jardine Matheson Backs Out of Deal to Buy 20% of Bear Stearns

Jardine Matheson Holdings, Hong Kong’s oldest and best-known trading company, on Friday backed out of an agreement to buy 20% of Bear Stearns Cos., a New York-based investment firm.

The deal was one of a rash of corporate transactions to fall apart this week as a result of Wall Street’s crash. Jardine signed an agreement Sept. 30 to acquire its stake in Bear Stearns for $23 a share, or about $392 million.

Bear Stearns’ stock closed at $12 a share, down $1, on the New York Stock Exchange following the announcement. The stock was trading at about $20 a share when the investment agreement was disclosed, and was at $18 as recently as last week.

Nevertheless, Bear Stearns appeared stung by Jardine’s move.

“We are sorry that Jardine apparently does not have the same confidence in our industry as we do,” said Alan C. Greenberg, Bear Stearns’ chairman and chief executive, in a prepared statement. “We are also exploring all of our legal options.”

Greenberg added that, “notwithstanding recent developments in the financial markets, Bear Stearns’ financial position is about the same as it was . . . when Jardine agreed to make its offer.”

Brian M. Powers, Jardine’s managing director, who flew to New York from Hong Kong after Monday’s market collapse, laced his announcement with praise for Bear Stearns. “The conditions which have led to the termination of our offer have not reduced our respect for Bear Stearns and its management,” Powers said.

That suggested to some analysts that Powers’ move may have stemmed from Jardine’s exposure in the Hong Kong stock market, which has been closed all week but is scheduled to reopen on Monday. But Powers, in a brief telephone interview before leaving New York to return to Hong Kong, dismissed that factor.

“Anything that’s happening in the Hong Kong markets is irrelevant to our decision,” he insisted. He added that the market’s behavior had raised “questions as to whether it would be in our shareholders’ best interest to proceed at this time.”

Lawrence W. Eckenfelder, a San Francisco-based analyst for Prudential-Bache Securities, said: “Clearly, it looked like a better deal when the stock was $18 than when it was at $12. The world has changed quite a bit in the last couple of weeks, not only for Bear Stearns but for Jardine.”

Eckenfelder, however, agreed with Greenberg that Bear Stearns still is in good shape.

Bear Stearns Cos., which became publicly traded in 1985, is controlled by Bear, Stearns & Co., an investment partnership that holds a 49.3% stake. The agreement with Jardine would have required the partnership to tender at least 20% of its holdings to Jardine, significantly shrinking the interest held by Bear Stearns’ partners, officers and directors.

The deal also would have put three Jardine’s representatives on Bear Stearns’ board of directors. At the same time, it would have vastly expanded the New York firm’s inroads into the lucrative Asian financial markets. Bear Stearns now has a small investment banking office in Hong Kong, and only recently opened an outpost in Tokyo.

When the proposed deal was announced last month, a Bear Stearns’ official said it produced “a million percent improvement in our visibility” in Asia.

Jardine Matheson Holdings, which traces its origins to the opium trade of the 19th Century, is a major investor in insurance, securities and real estate. Under the agreement with Bear Stearns, Jardine’s 46%-owned Jardine Strategic Holdings subsidiary would have spent the $392 million to acquire a Bear Stearns stake.