NEW YORK (Reuters) - Even as Neuberger Berman celebrates its first year as a private and independent firm, the money manager’s executives are moving toward an initial public offering.
In May last year, Neuberger's executives acquired a 51 percent stake of their company from bankrupt Lehman Brothers LEHMQ.PK and re-emerged as an employee-owned firm. Now as the Lehman bankruptcy approaches two years and business improves, Neuberger employees intend to increase their ownership in the fund manager and, in time, return to public markets.
“We’re on a base case to be a public company, most likely to monetize that stake through an IPO,” Neuberger Berman President Joseph Amato told Reuters. “At some point, the estate may look to monetize a portion or all its interest in Neuberger Berman.”
Amato, speaking on the sidelines of a press briefing, stressed there is no timeline and no pressure to pursue a transaction. He said an IPO would likely take place “a fair amount into the future.”
A Lehman Brothers spokeswoman said the estate “will evaluate various options and alternatives to monetize the investment in Neuberger Berman. While an IPO could be one of the several alternatives, there are no specific plans at this time for any particular path.”
HAPPY MARRIAGE FALLS APART
Neuberger Berman, a pioneering mutual fund manager founded by Roy Neuberger in 1939, was one of the country’s leading investment firms when it listed on the New York Stock Exchange in 1999. Four years later, it was acquired by Lehman for $2.6 billion and grew rapidly as the bank’s asset management arm.
That happy marriage fell apart in September 2008, when Lehman succumbed to the credit crisis and went bankrupt.
Neuberger Berman was among the bank’s most valuable and liquid assets. Creditors initially tried to sell the business to private investors, but Neuberger management prevailed with a deal to buy 51 percent of the firm for about $922 million.
After the sale, Lehman held 93 percent of Neuberger preferred equity and 49 percent of the common equity.
Lehman, in a recent regulatory filing, said its interests in Neuberger were now worth between $1 billion and $2 billion. The estate expects to recover value from its various assets over the next three to four years.
Neuberger’s employee stake crept to 52 percent in the past year, reflecting shares issued to new hires. On Tuesday, as Neuberger marked its first year of independence, Chairman and Chief Executive George Walker made it clear the firm’s 1,700 employees want even more.
“The firm is employee-controlled and will continue to be employee-controlled as long as we own more than 50 percent. If anything, we would like to find ways to increase our share,” Walker told reporters at a press briefing Tuesday.
Walker clarified that Neuberger has no “firm timetable.”
CONTROLLING ITS DESTINY
One thing for certain is that Neuberger’s business operations have stabilized and started to grow after a difficult launch.
Clients withdrew funds from numerous money managers during the panic of late 2008, but in particular they steered clear of a firm linked to Lehman. Clients continued to withdraw money in the first half of last year, but by the fourth quarter of last year, new money was outpacing withdrawals.
Amato said money flows in 2009 overall were negative.
Still, surging markets helped boost assets to $180 billion at the end of March from $155 billion last May, though Amato told Reuters that assets may be closer to $155 billion again following the recent market downturn.
Neuberger is again bringing in new clients and new assets, including $2.9 billion of first-quarter net in-flows. Client mandates across the firm add up to $7.9 billion of business in the past six months.
Since March, inflows remained “significant,” Amato told Reuters. “In the last three to four weeks, we are quite pleased. We’ve maintained nicely positive net flows, even through (Monday).”
Neuberger does not have complete control of its destiny, but it did secure various rights, including veto powers, as part of its separation agreement. Amato stressed that the Lehman estate has been a supportive partner.
Plans for Neuberger’s float are still highly preliminary, and the Lehman estate may sell its Neuberger interests in a number of different ways. In any case, Amato said Neuberger employees intend to own a controlling stake.
“Employees will always be the dominant holders and that’s important. Whether it’s 52 (percent) or 49 or 55, that will depend on lots of factors,” Amato said. “We have to look at clients in the eye and tell them we’re in charge, we’re in control of our destiny.”
Reporting by Clare Baldwin and Joe Giannone; Additional reporting by Emily Chasan, editing by Matthew Lewis
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