Court approves revised bidding procedures for Lehman investment management division

By Rebecca Melvin

New York, Oct. 16 - Lehman Brothers Holdings Inc. obtained approval of bidding procedures for the proposed sale of the firm's investment management division, which includes the Neuberger Berman unit, from the U.S. Bankruptcy Court for the Southern District of New York Thursday.

The procedures, which were met with numerous objections, were revised during a hearing.

Under the revised procedures, the seller termination fee, or break up fee, was reduced to $52.5 million from $70 million. Reimbursement expenses were revised to documented, out-of-pocket expenses with no cap from $35 million.

Initial overbid amounts were reduced to $25 million from $50 million, and incremental overbid amounts were reduced to $5 million from $25 million.

In addition, the due diligence period was shortened to 45 days from 60 days, with sale hearing set for 60 to 65 days after that.

Judge James Peck said that the improved bid procedures were a significant enhancement that made them acceptable to the court.

The modifications resolved the objections of the creditors committee and the informal note-holders group, but didn't clear away all objections.

Carlyle Investment Management LLC didn't withdraw its limited objection due to what it called an unfair process that created an unlevel playing field for potential bidders, like itself.

Specifically, the stalking horse bidder, private equity firms Bain Capital and Hellman & Friedman, would begin to solicit consents on its bid before the auction was actually held.

Peck said that he had lingering concerns about the consent process, but given that bidding procedure revisions were made and the fact that Neuberger Berman is a fragile enterprise as testimony during the hearing reflected, he was willing to approve the sale procedures.

"It's a private sale masquerading as a public one," Peck said unhappily.

The investment management division has 1,912 employees.

As previously reported, the stalking horse has agreed to buy the division for $2.5 billion. There is purchase price adjustment, based on the S&P 500, and the purchaser can walk away from the deal in the event of a 25% drop in the S&P - but it can't do so before June 30, 2009.

New York-based Lehman Brothers is the fourth-largest U.S. investment bank. It filed for bankruptcy on Sept. 15, and its Chapter 11 case number is 08-13555.

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