The Carlyle Group - "Neuberger spokesman Randall Whitestone declined to comment." Fall 2008 Financial News Archives

""Neuberger Berman sale not a done deal
Fund firm's value could wane amid volatile markets;
portfolio managers favor Bain-Hellman bid

By David Hoffman
November 23, 2008 12:01 AM ET

(Investment News)—Although the sale of Neuberger Berman was thought to be a done deal more than a month ago, the company is still in limbo as an auction process drags on—one that could do damage to the company's value, according to industry experts.

A former subsidiary of Lehman Brothers, Neuberger was orphaned when Lehman went belly-up in September.

Private equity firms Bain Capital Partners and Hellman & Friedman announced Sept. 29 that they were going to acquire Neuberger for $2.15 billion in partnership with its portfolio managers, the management team and senior professionals.

But that deal was challenged by another private equity firm, the Carlyle Group, and former Neuberger chief executive Jeffrey Lane.

Mr. Lane and Carlyle argued that the process that resulted in the Bain-Hellman & Friedman acquisition was flawed and did not allow Lehman to get the best deal possible for Neuberger. As a result, on Oct. 17 the U.S. Bankruptcy Court in New York approved a new auction, which ends Dec. 1.

The tussle can't help but hurt Neuberger. Theoretically, a floor of $2.15 billion has been set as the asking price. But given the fact that all asset managers, including Neuberger, have been hemorrhaging assets in volatile markets these last few months, “I wonder how permanent that floor really is,” said Burton Greenwald, a mutual fund consultant in Philadelphia.

Not including money-market funds, Neuberger saw $615.97 million come out of its funds in October and $302.07 million leave in September, according to Morningstar.

Adding to concerns, two managers recently left the firm.

Milu Kromer, co-manager of the $451 million Neuberger Berman International Fund, left the company for New York value manager Cramer Rosenthal McGlynn. And Steven Brown, lead manager of the $41 million Neuberger Berman Real Estate Trust, left for American Century Investments of Kansas City, Mo.

Any departures during a time of uncertainty raise concerns, said David Kathman, a mutual fund analyst at Morningstar. But the departures of Ms. Kromer and Mr. Brown probably aren't cause for alarm, he said, because they were not high-profile managers.

Other portfolio managers likely won't leave the firm, he said.

They have good reason not to. If the Bain-Hellman deal holds up after the auction process—something industry experts said is still a strong possibility—it's believed that portfolio managers have agreements in place with the two private equity firms that would give them a great deal of control over Neuberger, Mr. Kathman said.

Neuberger spokesman Randall Whitestone declined to comment.

There is no doubt, however, that a majority of Neuberger portfolio managers want the Bain-Hellman deal to go through, Mr. Kathman said. “They are hoping they can sell to Bain/Hellman like they agreed. If they can't, it's another wrench that could cause complications.”

That's because most of the names being bandied about as potential buyers of Neuberger are other private equity firms, said Geoff Bobroff, a mutual fund consultant in East Greenwich, R.I. Most private equity firms don't hold on to their investments for long, and that can be disruptive, he said.

A prime example is Delaware Investments of Philadelphia, Mr. Bobroff said.

The company was purchased in a leveraged buyout in 1988 by Legend Capital, a partnership managed by Castle Harlan, a New York private equity firm. In 1994, Legend sold Delaware to Lincoln National Corp., then in Fort Wayne, Ind.

At the time of the sale, Castle Harlan trumpeted the fact that since the initial acquisition, Delaware Investments' assets had increased by more than 50%. But after being acquired by Lincoln, Delaware went into a steep decline.

“I'm not a fan of private equity firms, because they don't have a long-term perspective,” Mr. Bobroff said. ""


Source of Post
http://www.financialweek.com/article/20081123/REG/311249988/1011/rss15