Carlyle says $2bn Neuberger bid too low

The Washington, DC-based firm wants to outbid Bain and Hellman & Friedman for Lehman’s investment management unit, but has said provisions in the sales agreement including a $110m break-up fee will have a chilling effect on additional bidders.

The Carlyle Group has objected in bankruptcy court to a $2.15 billion bid by private equity firms Bain Capital and Hellman & Friedman to buy Lehman Brothers’ investment management division Neuberger Berman.

Carlyle said it wants to bid on the unit, 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.

Carlyle said it took issue with the deal's $110 million break-up fee, which it says is “exceptionally high”, and will “result in an entrenchment of the purchaser’s offer and a significant chilling of bidding”. The sales agreement lists the break-up fee as $70 million, but Carlyle said the fee is higher after accounting for adjustments in the sales agreement.

The firm also said the sales process calls for the private equity firms and Lehman to get the consent of Neuberger’s clients for the bid before the auction. Carlyle said the “court-sanctioned marketing process” will make Neuberger’s clients reluctant to go through another solicitation process with a new bidder. Carlyle said the client-consent process should occur after the auction of Neuberger.

“Carlyle is plainly a qualified bidder,” the firm said in a court filing. “Without … changes, Carlyle believes that it and other interested parties are likely to refrain from bidding.”

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 sales agreement between the private equity firms and Lehman is subject to approval from bankruptcy court and must go through a sales auction before receiving final approval. A hearing on Carlyle’s motion is scheduled for 10 a.m. Thursday.