Lehman Sells Unit to Bain, Hellman for $2.15 Billion

Lehman Brothers Holdings Inc. agreed to sell its investment-management unit to Bain Capital LLC and Hellman & Friedman LLC for $2.15 billion as the New York-based firm liquidates assets in bankruptcy.

The transaction includes Lehman's Neuberger Berman money- manager division, which oversees about $130 billion, as well as part of a private-equity group that invests in leveraged buyouts and real estate, the companies said today in a statement. Lehman, which filed for bankruptcy on Sept. 15, has sold its North American investment-banking division and European operations.

Private-equity firms were the only bidders in a rushed auction of the unit after Lehman went bust. They were attracted by a business with $230 billion in customer assets and a steady cash flow that would have fetched more if not sold under duress.

``They're certainly not buying this at the top of the market,'' said Steven Kaplan, a professor at the University of Chicago Graduate School of Business who studies private equity. ``It's somewhat of a distressed sale. If you're betting this is the bottom of the cycle, it's an awesome business.''

The two firms will own the business together through an all-cash transaction, according to the statement. Executives and portfolio managers will have equity stakes that may increase over time, the firms said.

Roy Neuberger and Robert Berman founded the firm that bears their names in 1939 to serve wealthy clients. During the 1950s, it was among the first firms to offer customers mutual funds that didn't charge transaction fees. Neuberger, now 105, retired before the 1987 stock-market crash. The fund unit oversees $130 billion.

Private-Equity Funds

Lehman Chief Executive Officer Richard Fuld bought Neuberger in 2003 for $3.2 billion to expand the firm's wealth- management business and later consolidated its asset-management operations into a single division. He had hoped to hold onto a stake in the unit as part of his failed plan to keep the 158- year-old firm afloat.

Also included in the sale are portions of Lehman's $35 billion private-equity business, managed by Michael Odrich, a 22-year Lehman veteran. That unit manages almost 40 funds.

Odrich will join the new company, as will Tony Tutrone, head of the private funds investment group. The transaction doesn't include Lehman's merchant-banking business, real estate, venture capital or certain hedge funds, according to the statement.

The sale also doesn't include Lehman's private-investment- management division, which the firm agreed to sell separately to Barclays Plc. London-based Barclay's last week concluded its purchase of Lehman's North American investment-banking business.

Lehman must get approval for the sale to the buyout firms in federal bankruptcy court, where Judge James Peck will determine whether the auction drew the best possible price from a full field of bidders. The sale doesn't include Lehman's stakes in hedge-fund managers GLG Partners Inc. and Ospraie Management LLC.

Other Bidders Withdrew

While Bain and Hellman & Friedman initially bid separately, they teamed up after firms including Blackstone Group LP, Carlyle Group, Clayton Dubilier & Rice Inc. and KKR & Co. LP dropped out. Prior to bankruptcy, the investment-management unit was valued at as much as $10 billion.

Hellman & Friedman bought fund manager Gartmore Investment Management Plc in 2006 for about 500 million pounds ($927 million), gaining $47 billion in assets under management. The San Francisco-based firm helped create Farallon Capital Management LLC, the San Francisco-based hedge-fund manager founded by Thomas Steyer, and invested in Franklin Resources Inc., the San Mateo, California-based owner of the Franklin and Templeton mutual funds.

The purchase reunites Chairman Warren Hellman, a former Lehman president, with a piece of the firm he once ran. He left Lehman in 1977 and four years later moved to San Francisco, founding his firm with Tully Friedman in 1984.

Bain, also founded in 1984, most recently teamed with Blackstone to buy the Weather Channel with NBC Universal Inc. Previous financial-services deals included the purchase of Web broker Datek Online Holdings Corp.