Judge approves auction for Lehman's investment management division

The auction for Lehman's Neuberger Berman and units including private equity fund of funds and secondaries, as well as infrastructure, will proceed despite objections from Carlyle over a $2.15bn bid from Bain and Hellman & Friedman.

A bankruptcy judge on Thursday cleared the way for an auction of Lehman Brothers' investment management business Neuberger Berman despite objections from The Carlyle Group that the process unfairly locked in a $2.15 billion bid from private equity firms Bain Capital and Hellman & Friedman.

The auction could take place within 45 days, according to a report from Reuters.

“Allowing this to proceed represents the principal stabilising force for the business,” Judge James Peck said at a hearing in US Bankruptcy Court in Manhattan, according to Reuters.

Carlyle said in court papers it wants to bid on Neuberger. The firm said Bain's and Hellman's bid is too low, but the sales agreement between the private equity firms and Lehman “impede the ability of Carlyle to bid … and prevent [Lehman Brothers] from receiving bidders’ highest and best offers”. The firm said it is working with the former chairman and executive officer of Neuberger, Jeffrey Lane, on an offer for Neuberger.

The bid, made last month, includes Neuberger and some of Lehman’s asset management and private funds units, including fixed income, private equity fund of funds and secondaries. The deal also would involve some of Lehman’s co-investments and several start-up private equity businesses, including its debut infrastructure fund, which is targeting $1 billion.

The deal will not include Lehman Brothers' major private equity businesses like merchant banking, real estate, venture capital and master limited partnerships, according to a statement from Neuberger. Also, Lehman Brothers' limited partner investments in the acquired funds will not be included in the sale.

Lehman also may find a home for its $9 billion private equity real estate business, Lehman Brothers Real Estate. Media reports said the business may be spun-out in a management buy-out. The sale of Lehman's real estate private equity business also would have to be approved by bankruptcy court.

The global heads of the private equity real estate firm, Mark Newman and Brett Bossung, along with the firm’s European head Gerald Parkes, were aiming to take control of the business, according to a report today in Property Week. Lehman was not available for comment.

The investment bank filed for Chapter 11 bankruptcy protection on September 15 after failing to find a buyer when the US Federal Reserve refused to provide guarantees for the bank’s liabilities. Both UK bank Barclays and US-based Bank of America walked away from talks to buy the 158-year-old investment bank.

The private equity real estate business is believed to be 20 percent owned by the bank and management team – the stake being sold as part of its bankruptcy and now being targeted by Newman, Bossung and Parkes – with the majority held by third parties. 

Just days prior to Lehman’s bankruptcy, Lehman Brothers Real Estate closed its latest opportunistic global vehicle, the $3.2 billion Lehman Brothers Real Estate Partners III.

Eva Poon contributed to this article