Bear, Tiger, Panda - or cub?

22 October 2007 By Antony Currie Follow @AntonyMCurrie

It s not a bad step for the Wall Street firm. While Citic’s buyin to Bear looks less expensive than the US firm’s reciprocal investment, the alliance brings Bear’s paws into greater China, an exposure it sorely lacked. But it isn’t enough to give Bear a strong Asian franchise.

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Bear Stearns and China's Citic Securities have struck a strategic alliance to develop a joint Asian business. To cement the deal, the two have agreed to invest $1bn in each other using convertible trust preferred securities. The conversion price has been set at the average closing price of each stock for the five trading days before and including October 19th.

Fully diluted after conversion, Citic would hold roughly 6% of Bear, with an option to increase its stake to 9.9%. Bear's investment would equate to about 2% of Citic, and the US investment bank has also bought fiveyear options that would allow it to increase its stake to 6%.

The strategic alliance involves setting up a joint venture in Hong Kong, with each firm holding a 50% stake, to manage all nonChina business. Because Citic's business is smaller, the Chinese firm will pay a sum to Bear both now and in the future to seal its 50% stake.

The joint venture will not extend to the rest of China, but the two will be working in broad collaboration in the People's Republic.

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