Lehman faces hard bargaining to sell Neuberger

By Paritosh Bansal and Megan Davies

NEW YORK (Reuters) - Lehman Brothers Holdings Inc has made a tough call by deciding to auction a big piece of its investment management unit, seen as one of its crown jewels. Now, it could face an even harder task -- getting a good price for it.

The fourth-largest U.S. investment bank has struggled to raise capital to offset write-downs due to the credit crisis, and some bankers said Lehman's plan to sell a majority stake in its valuable business, including asset manager Neuberger Berman, is a sign of the desperate straits it is in.

"Neuberger Berman is a first-class property that people will be interested in. You certainly have a stressed seller who needs capital. That presents interest plus opportunity," said Eric Weber, chief operating officer of Freeman & Co, a merger advisory firm focused on financial services. "People smell blood in the water."

Lehman released its quarterly results and plans for raising capital about a week earlier than planned, after investors sent its stock reeling on concerns it won't be able to raise enough funds and its survival might even be in question.

It posted a quarterly loss of $3.93 billion on Wednesday and said it plans to shed some assets, including selling about 55 percent of a portion of the investment management division. That includes Neuberger and the private equity and wealth management businesses. Experts say the unit overall could be worth around $8 billion.

The division, which is headed globally by George Walker, a former Goldman Sachs partner and second cousin of U.S. President George W. Bush, is a steady source of income for Lehman and the decision to sell a stake is not a happy choice.

The company had $273 billion in assets under management as of August 31, with $98 billion in equity, $93 billion in fixed income, $44 billion in money markets and $38 billion in alternative investments.

That makes it roughly the same size as Wachovia Corp's Evergreen Investments, with about $245 billion in assets under management, but it is far smaller than BlackRock Inc's $1.428 trillion, both as of June 30.

Revenue for the investment management unit was $634 million in Lehman's third quarter, down 21 percent year-over-year.

"As a longtime industry observer, it is a heartbreak to watch," said Elizabeth Nesvold, managing partner at investment bank Silver Lane Advisors. "Neuberger is a special asset. For some lucky buyer, there is a phenomenal opportunity."

POTENTIAL BUYERS

Lehman said a majority stake sale will improve its capital ratios and increase its tangible book value by more than $3 billion because of the accounting impact stemming from its 2003 purchase of Neuberger for about $3.1 billion.

Lehman said it is in "advanced discussions with a number of potential partners," with Chief Executive Dick Fuld noting that it had spoken to financial and strategic investors about the unit.

Private equity firms Kohlberg Kravis Roberts, Hellman & Friedman and Bain Capital are in the running for the business, said sources who declined to be identified.

A person familiar with the matter said bids are due Friday and the investment bank hopes to announce a sale in October.