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Judge OKs partial sale of Lehman to Barclays

September 21, 2008|From the Associated Press

NEW YORK — A bankruptcy judge decided Saturday that Lehman Bros. Holdings Inc. can sell its investment banking and trading businesses to Barclays, the first major step to wind down the nation's fourth-largest investment bank.

U.S. Bankruptcy Judge James Peck gave his decision in a courtroom packed with lawyers at the end of an eight-hour hearing that extended into the wee hours Saturday morning, capping a week of financial turmoil.

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

Lehman Bros. filed the biggest bankruptcy case in U.S. history 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 U.S. "Not only is the sale a good match economically, but it will save the jobs of thousands of employees," said Lehman lawyer Harvey Miller of Weil, Gotshal & Manges.

Barclays took on a potential liability of $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 advisor, Barry Ridings, of Lazard Ltd.

Barclays had little competition. Miller said that before it filed for bankruptcy, Lehman had negotiated with just one other bidder, Bank of America Corp. BofA instead announced Monday that it would buy Merrill Lynch & Co., saving that firm from a fate similar to Lehman's. That deal was originally valued at $50 billion.

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

The Bush administration announced Friday the biggest proposed government intervention in financial markets since the Depression. Some are calling it an "RTC-style bailout," in reference to the government-owned Resolution Trust Corp. that wound down the assets of savings and loan associations, mostly in the 1980s.

"Somehow Lehman Bros. gets left on the sidelines," said Daniel Golden of Akin Gump Strauss Hauer & Feld, who represents clients holding about $9 billion in bonds. "We believe this was a flawed sales process. It benefits Barclays and the federal government but not the creditors of this estate.

"The economic landscape seems to have changed over the last two days," he said. "Yet the debtors and the Fed seem determined that nothing get in the way of this transaction."

Had Lehman filed for Chapter 11 a week later than it had, its fate may have been different. "This is a tragedy -- maybe we missed the RTC by a week," Miller said.

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