Lehman Agrees to Buy Neuberger

The deal caps a month-long courtship for one of the premier asset-management firms.
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Updated from 8:36 a.m. EDT

Lehman Brothers

(LEH)

said Tuesday it will buy

Neuberger Berman

(NEU) - Get Report

in a $2.63 billion cash and stock deal, capping a month-long courtship for one of the premier asset-management firms.

The purchase price is slightly less than the $3 billion price tag that most industry observers had speculated it would take to get the deal done.

Lehman will pay $41.48 a share for Neuberger's stock, which is a 2.5% premium to the price the asset manager's stock closed at Monday.

But the sale price represents a 20% premium to the price Neuberger's stock was trading for on June 24 -- the date speculation about the deal started making news. The deal also will pay Neuberger shareholders $9.49 in cash and 0.496 shares of Lehman stock.

In afternoon trading, Neuberger's stock was down 51 cents, or 1.3%, at just under $40. Lehman was down a $1, or 1.5%, at $63.52.

In acquiring Neuberger, Lehman gets a money management firm with $63.7 billion in assets under management. The move is part of an attempt by Lehman, which has a small retail customer base, to diversify its business beyond bond trading and investment banking work.

A key part of the deal is the $120 million Lehman is setting aside in restricted stock and other compensation as a way to retain key employees at Neuberger.

"Financially, we expect the combination to further improve our ability to generate consistent and attractive cross-cycle results and create additional value for our shareholders," Lehman said in a statement. "Culturally, Neuberger Berman is a wonderful fit with our one firm culture."

But not everyone on Wall Street was impressed with the deal.

David Trone, a Prudential Securities brokerage analyst, said Lehman is paying too much for Neuberger. While the deal may make sense strategically, Trone contends the price tag is too rich because it will dilute Lehman's earnings in 2004 and won't lead to enough cost savings at the merged firms.

"Neuberger is certainly an attractive property in isolation, but in our view Lehman has paid handsomely for what is essentially a 'cut and paste' transaction," said Trone in a research report.