Media comments re Lehman acquisition

Extracts:

Barclays announcement 17/08/08
http://www.investorrelations.barclays.co.uk/INV/A/Content/Files/Lehman_Press_Release_170908.pdf

The Board of Barclays announces that Barclays has agreed, subject to US Court and relevant regulatory approvals, to acquire Lehman Brothers North American investment banking and capital markets operations and supporting infrastructure. The transaction will create a premier integrated global bulge bracket investment banking company with a leading presence in all major markets and across all major lines of business including: equity capital markets, debt capital markets, mergers and acquisitions, commodities trading and foreign exchange.

Barclays will acquire trading assets with a current estimated value of £40bn (US$72bn) and trading liabilities with a current estimated value of £38bn (US$68bn) for a cash consideration of £0.14bn (US$0.25bn). Barclays will also acquire the New York
headquarters of Lehman Brothers as well as its two data centres at close to their current market value.

In response to this opportunity, certain Barclays shareholders have expressed support for the transaction and interest in increasing their shareholdings in Barclays. The Board of Barclays expects these discussions to lead to a subscription of at least £0.6bn (US$1bn) of additional equity. The proposed transaction with Lehman Brothers and the additional equity would result in an enhancement of Barclays earnings and capital ratios.

Robert E Diamond Jr, Barclays President, said “This is a once in a lifetime opportunity"

Reuters 17/08/08
http://uk.reuters.com/article/businessNews/idUKLF57014720080917?feedType=nl&feedName=ukdailyinvestor
Barclays agreed to pay about $1.75 billion (1 billion pounds) for some of the bank's prime U.S. assets following its bankruptcy filing.
Most of the price tag was accounted for by Lehman's New York headquarters and two data centres, while Barclays will pay just $250 million in cash for Lehman's North American investment banking and capital markets businesses.
The operations include fixed income and equities sales, trading and research, and investment banking,

Barclays said some of its shareholders had expressed interest in increasing their stakes in the bank as part of their support for the deal, and its board expects those discussions to lead to a subscription of at least $1 billion of additional equity.

Citywire 17/08/08
http://www.citywire.co.uk/personal/-/news/markets-companies-and-funds/content.aspx?ID=314503&re=3730&ea=91427&ViewFull=True
Barclays has acquired Lehman Brothers's North American investment banking and capital markets businesses for £140 million in what it described as 'a once in a lifetime opportunity' but said it will have to raise at least £600 million in a share offering to pay for the deal.
The banking group said it will acquire trading assets with a current estimated value of £40 billion and trading liabilities with a current estimated value of £38 billion. It will acquire the New York headquarters of Lehman Brothers as well as its two data centres at close to their current market value, taking the full price of the acquisition to £1 billion.

Barclays has indicated it has traded satisfactorily in July and August, with the monthly run-rate slightly below the average in the first half of the year, reflecting usual seasonality, with all businesses profitable.

Citywire 17/08/08
http://www.citywire.co.uk/personal/-/news/markets-companies-and-funds/content.aspx?ID=314562&re=3737&ea=91427&Page=1&ViewFull=True

Barclays had been considering making a bid for Lehman Brothers for some time, the bank's chief executive John Varley said this afternoon.
This preparation meant the group was able to move quickly to make an offer for those parts of the business it wanted when the bank filed for bankruptcy protection, Varley said.

He said Barclays had identified Lehman as a potential target, but because of Barclays’ stringent approach to capital discipline, it had been waiting for a move in the price.
Varley said this interest had meant Barclays had been 'minimising our exposure to Lehman' over the summer.

Barclays management said there was a fantastic strategic fit and the business Barclays were acquiring were good businesses with strong revenues.
‘Lehman's cash equity business is extremely profitable,’ said Diamond.
'The franchise of the trader dealer business remains strong & healthy,' said Varley
'Lehman has scale and depth in the US but not in the same areas as Barclays Capital,’ he added.
By product, Lehman brings excellence in equities and government-backed bonds, whereas Barclays Capital brings excellence in commodities and forex, among others.
Varley said there would be some overlap but said it was 'surprisingly little’.

Varley said the Lehman deal would have been accretive even without any issuance but - since the group had the support of some its shareholders - thought it was a good idea to combine the two operations in order to fund future growth of the newly acquired business.

Telegraph 19/09/09
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/09/19/cnbarclays119.xml

Barclays raised £700m in fresh equity capital yesterday - in a move that will give it one of the strongest balance sheets among British banks.
The fundraising is on top of £600m that is to be injected by key shareholders and follows acquisition of the US assets of failed investment bank Lehman Brothers.
Barclays took the City by surprise announcing - and completing within five hours - the share placing with institutional investors.

It brings to £1.3bn the new equity capital that the bank will raise following its move on Lehmans' American investment banking and capital markets business, just two months after raising £4.5bn in a share placing.
The investors tapped yesterday paid 310p for each of the 226m new shares - a discount of 2.4pc on the closing price the previous day. But they suffered an effective loss immediately with the bank's share price falling 16¾ to close at 301p as the financial sector lost ground broadly.

Barclays executives were upbeat nonetheless, with the share issue expected to bolster the bank's core equity tier one ratio - a key measure of balance-sheet strength - by about 20 basis points to 6.5pc. Analysts expect the Lehmans deal and proposed further capital injection of £600m to increase the ratio further, to about 6.9pc - second only to HSBC among Britain's biggest banks.

The £700.6m raised yesterday represents a 2.8pc increase in Barclays' issued share capital, with the further £600m to take that figure beyond 5pc - in theory still leaving the bank space to tap investors for about that sum again without a time-consuming rights issue.

Times: 20/09/08
http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article4794376.ece#cid=OTC-RSS&attr=1185799

A bankruptcy judge today decided that Lehman Brothers can sell its investment banking and trading businesses to Barclays...

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 on Friday. It may now be worth closer to $1.35 billion, which includes the $960m price tag on Lehman’s Midtown Manhattan office tower.

Lehman lawyers announced a number of changes to the deal before the hearing, which started at 4:30 pm Friday and continued well past midnight. They said the value of stock Barclays will buy and liabilities it will assume had fallen since the start of the week due to market volatility. Under the new deal, Barclays will buy $47.4 billion in securities and assume $45.5 billion in liabilities.
Barclays also said it would buy three additional units - Lehman Brothers Canada Inc., Argentina-based Lehman Brothers Sudamerica SA and Lehman Brothers Uruguay SA. The two South American entities are part of Lehman’s money management business. Barclays is not paying extra to get the three units.
There was no change to a $250 million goodwill payment and the purchase of two data centres in New Jersey that will go to Barclays, although Barclays may pay less for them.

Sunday Times: 21/09/08
http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article4794897.ece

They had been prepared to sanction the initial deal, but when they heard details of the second, which allowed Diamond to cherry-pick assets, they knew that on fundamentals they had a bargain.
Varley said: “We didn’t declare on the first transaction what we would have paid, but of course we are paying a lot less than we would have because we are buying a smaller business and because the circumstances are different.”
It has long been the intention of Varley and Diamond to crack Wall Street. They already have an operation there under the Barclays Capital banner which has expanded from 4,000 staff to 16,000 in the past three years – but the aim up to now was to expand organically.
Varley believes Diamond has delivered a generational deal that could enable Britain’s third-biggest bank to take on Wall Street, which is one of the most competitive markets in the world.
Varley is acutely aware of the execution risk but he said: “The markets are defining, in a brutal way, the winners and losers and my determination is that – not withstanding the toughness of these markets – Barclays will be a winner.

Background research on Lehman had been done months ago in early summer. Varley said: “Our thought was that if the price moved into the zone where we thought we could generate good value for our shareholders then we would be very interested in moving. I think it is very unlikely in an even semi-normal situation that the price we had in mind would have been a price that the Lehman board would have wanted.”