Bain takes Neuberger

Lehman Brothers has agreed to sell its Neuberger Berman asset management subsidiary to Bain Capital and Hellman & Friedman for about US$2.15bn in an all-stock transaction. Bain and Hellman were early favourites to take Neuberger. The deal price, however, is a blow for Lehman Brothers’ creditors, who were expecting the asset to fetch a better price.

The deal includes Neuberger, Lehman’s fixed income and alternative asset management business, forming the core of an investment management company that managed about US$230bn at the end of August. Lehman bought Neuberger in 2003 for US$2.63bn when the firm had about US$65bn in assets under management.

Earlier this year, when Lehman was widely rumoured to need liquidity, estimates for Neuberger were as high as US$8bn. In the week before Lehman was forced into bankruptcy protection, the company suggested that it would raise US$4bn to US$6bn selling the asset.

For creditors, the US$2.15bn bid follows deep disappointment over the US$1.75bn sale price for Lehman’s brokerage, trading and investment banking operations and its headquarters at 745 Seventh Avenue in Manhattan.

The US$2.15bn bid for Neuberger is a stalking-horse bid. It will be submitted to the bankruptcy court and will lead off an auction that could take place as soon as the end of this month. If no other bidders emerge, the deal is likely to be completed by early next year.

The bankruptcy court blessed the lightning-fast speed with which Lehman’s investment bank was sold to Barclays, because of the extreme risk that the value would disintegrate in a matter of days.

While the sense of urgency is not quite the same, since Neuberger is not part of Lehman’s bankruptcy case, its association with a bankrupt parent will become a drain in the near term. Among the immediate risks is that its assets, as well as asset managers, will be lured away.