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Private Equity Firms Interested in Buying Lehman

Wednesday, 10 Sep 2008 | 9:52 AM ET

In recent weeks, Lehman Brothershas received interest from private equity firms for a potential purchase of the troubled brokerage house, but top officials said the company wasn't for sale, people close to the matter say.

CNBC.com

The news comes as Lehman prepares to preannounce third-quarter results at 7:30 am Wednesday morning in New York. Lehman will also provide investors with some guidance on the firm's "strategy".

Korea Development Bank on Wednesday confirmed talks had ended for now with Lehman Brothers over a possible investment because of disagreement over terms and considering financial market conditions.

"We are announcing that we ended talks at this point in time because of a disagreement over conditions of a transaction and considering domestic and foreign financial market conditions," KDB said in a statement.

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Fast Money: What's Next for Lehman Brothers? Click Here to Get the Traders' Take

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Lehman is expected to announce a massive loss, and writedowns from troubled debt. The firm has been hammered in recent days as it attempts to raise capital through infusions from banks, and the sale of its investment management business.

Some big investors are praying for an outright sale of the firm, whether its private equity or a large U.S. bank, like Bank of America.

It is unclear just how much private equity firms are willing to pay for Lehman, or whether Lehman brushed aside the interest because the private equity firms made a low ball offers; Sources say senior executives at Lehman told the firm that rather than purchase Lehman, they could bid on its asset management unit.

LEH Shares Down
Discussing why to buy Lehman now, with Richard Bove, Ladenburg Thalman and CNBC's Erin Burnett.

It is also unclear if regulators will allow a private equity firm to buy a major Wall Street player, particularly one with huge amounts of illiquid securities on its books, like Lehman.

But with the 45 percent drop in the firm's share price on Tuesday, Lehman may be open to even low ball offers from private equity firms despite the famously independent streak of its CEO Richard Fuld.

(Watch the video above to hear insight from Ladenburg Thalman's Richard Bove.)

Lehman has historical ties with private equity firm Blackstone; the firm's executives Peter Peterson and Steve Schwartzman were former Lehman investment bankers.

A spokesman for Lehman declined to comment.

Lehman shares fell to their lowest level in nearly a decade Tuesday amid growing concern that Wall Street's fourth-largest investment bank would be unable to raise needed capital in the wake of huge losses.

The securities firm has been seeking to boost liquidity after suffering $8.2 billion in write-downs and credit losses since the financial crisis began last year.

The steep decline in Lehman's shares began shortly after Dow Jones Newswires reported on Tuesday that the head of South Korea's financial regulator said talks about a possible investment had ended.

Lehman To Pre-Announce Earnings

CNBC was first to report that Lehman was mulling a pre-announcement of its earnings this week after scheduling the official announcement last week. Late in the afternoon, and after the close of New York Stock Exchange trading, Lehman issued a press release saying at it would provide details on financial results and strategy on Wednesday morning.

The move was prompted in part by the precipitous fall in Lehman's share price, and a spike in the cost of credit default swaps, which are insurance policies against a Lehman defaulting on its debt. Prices of these instruments rose dramatically, signaling that many investors fear the worse for Lehman as it grapples with huge writedowns and losses.

In addition to providing guidance on earnings, Lehman is expected to give some guidance Wednesday morning on its plan to sell troubled real estate assets to various firms, including BlackRock, as well as a separate plan to sell other troubled real estate assets to a new company.

The firm may also give guidance on its sale of the investment management division, which includes the firm's crown jewel Neuberger Berman asset management unit. Lehman had valued the investment management division at around $10 billion, but given the difficult markets, many investors say the firm will have to settle for far less. Neuberger itself could fetch around $5 billion these investors say, but its unclear just how much the remaining parts of the business with include the firm's brokerage division and stakes in several hedge funds, would glean.

People close to Lehman say two bidder for the investment business, KKR and Hellman & Friedman appear to be the lead bidder, though that might change.

-- Reuters contributed to this report

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