Lehman Brothers Holdings Inc. is buying the asset manager Neuberger Berman Inc. for $2.63 billion to reduce reliance on bond sales and trading.
The two New York companies had confirmed earlier in the month that they were in talks, but Wall Street was expecting a higher price - $3 billion, according to Stephen Berman, who helps manage $7 billion, including 574,829 Lehman shares, at Stein Roe Investment Counsel.
The deal was announced Tuesday. Lehman said it would pay $41.48 a share in cash and stock, in what would be chief executive officer Richard Fuld's biggest purchase. Neuberger CEO Jeffrey Lane, Mr. Fuld's former colleague at Shearson Lehman Brothers Inc. in the 1980s, will become a Lehman Brothers vice chairman.
Neuberger oversees $63.7 billion and serves individuals with more than $500,000 to invest. Debt trading and underwriting accounted for 63% of Lehman's second-quarter revenue, and Lehman said it expects the acquisition to lift revenue from its client-services unit to 21%, from 13% currently.
"It was smart to take this route," said James Hearty, a former Lehman managing director who now heads the Massachusetts Pension Reserve Investment Management Board, which owns Lehman and Neuberger shares. "It would have taken a very long time for Lehman to get the critical mass necessary to grow on their own."
Lehman manages funds worth about $36 billion, analysts estimate, less than a tenth of the $442 billion managed by Merrill Lynch & Co. Morgan Stanley manages $421 billion and Goldman Sachs Group Inc. about $346 billion.
To retain Neuberger's best producers, Lehman will establish a pool of $120 million in restricted stock.
Mr. Fuld's most recent acquisition, the December purchase of Lincoln Capital's fixed-income unit, was also in the money-management business. The Neuberger deal "was more about our view of what we thought the upside was on the asset-gathering side," Mr. Fuld said
The purchase is expected to close during Lehman's fiscal fourth quarter, which will end Nov. 30.
