Neuberger Berman employees will be able to purchase the 48% of the firm currently held by the estate of Lehman Brothers Holdings over the next five years under an agreement announced Wednesday.
The first step of the agreement, filed in U.S. Bankruptcy Court in New York, calls for Neuberger Berman to use its free cash flow, employee purchases or external financing to redeem, at par, $813 million of preferred equity held by Lehman Brothers Estate.
After that, Neuberger Berman employees will be able to purchase an initial 19% chunk of the Lehman estate's 48% equity stake, and roughly a quarter of the remaining 29% equity total for each of the following four years, George Walker, Neuberger Berman's CEO, said in a telephone interview.
Neuberger Berman employees currently hold a majority 52% stake in the company.
In the same interview, Jack D. McCarthy Jr., a managing director with Alvarez & Marsal, a restructuring firm overseeing the Lehman estate, said the agreement paves the way for Neuberger Berman's continued growth, while allowing the Lehman estate to share in those gains.
While outside firms will value Neuberger's stock as successive chunks of the firm's equity change hands, it seems likely the estate will get roughly twice as much for its Neuberger Berman assets as it would have received by accepting an alternative offer from private equity bidders three years ago, Mr. McCarthy said.
Mr. Walker said he hopes the court will approve the agreement by the end of this month, after which the process of making Neuberger Berman a 100% employee-owned firm can begin.
He said currently 300 of the firm's roughly 1,700 employees are equity partners, up from 250 when the deal was done at the end of 2008, and that number should grow.
Mr. Walker called the deal a win-win proposition, for clients as well as the Lehman estate and Neuberger Berman employees. After telling clients for three years a plan would be put in place to repurchase the firm's equity over time, “now we can say here's exactly how it will work,” he said.