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Judge approves Barclays’ Lehman buyout proposal

A bankruptcy judge approved a plan just after midnight yesterday under which Lehman Brothers would sell its investment banking and trading businesses to the British bank Barclays.

The deal was said to be worth US$1.75 billion earlier last week but the value was in flux after lawyers announced changes to the terms on Friday. It may now be worth closer to US$1.35 billion, which includes the US$960 million price tag on Lehman’s Midtown Manhattan office tower.

Lehman filed the biggest bankruptcy in US history on Monday, after Barclays declined to buy the investment bank in its entirety.

The British bank will take control of Lehman units that employ about 9,000 employees in the US.

“Not only is the sale a good match economically, but it will save the jobs of thousands of employees,” Lehman lawyer Harvey Miller of Weil, Gotshal & Manges said.

Barclays took on a potential liability of US$2.5 billion to be paid as severance, in case it decides not to keep certain Lehman employees beyond the guaranteed 90 days. But observers have said Barclays’ main reason for acquiring Lehman is to get its people and presence in North America, making widespread layoffs less likely.

“It’s unimaginable to me that they can run the business without people,” said Lehman’s financial adviser, Barry Ridings, of Lazard Ltd.

Barclays had little competition to land the deal.

Miller said that before it filed for bankruptcy, Lehman had negotiated with just one other bidder, Bank of America Corp (BOA). BOA instead announced on Monday it would buy Merrill Lynch & Co, saving it from a fate similar to Lehman’s. That deal was originally valued at US$50 billion.

Miller said that since Lehman filed for bankruptcy, Barclays had been the only buyer to express interest in acquiring even part of the 158-year-old investment bank.

Lehman lawyers announced a number of changes to the deal before the hearing, which started at 4:30pm on Friday and continued well past midnight yesterday.

Lehman lawyers said the value of stock Barclays will buy and liabilities it will assume has fallen since the start of the week due to market volatility. Under the new deal, Barclays will buy US$47.4 billion in securities and assume US$45.5 billion in liabilities.

Barclays also said it would buy three other units — Lehman Brothers Canada Inc, Argentina-based Lehman Brothers Sudamerica SA and Lehman Brothers Uruguay SA. The two South American entities are part of Lehman’s money management business. Barclays is not paying extra to get the three units.

There was no change to a US$250 million goodwill payment and the purchase of two data centers in New Jersey that will go to Barclays, although Barclays may pay less for them. Lehman’s investment management business Neuberger Berman was not bought by Barclays.

The Securities Investor Protection Corporation liquidated Lehman accounts on Friday under a bankruptcy-style process to transfer assets from 639,000 Lehman customer accounts — about 130,000 of which are owned by individual investors — to Barclays accounts.
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