Laid Off by Lehman: One Broker’s Story. Worth a watch.
So it’s been two months since I posted about a possible Lehman Brothers buyout and it’s looking like a less strange solution with each passing uncertain day for the firm. In July Lehman’s market value was about $17 billion, too seemingly large a deal to get done under current credit conditions. Flash forward to the halfway point of trading today and the firm’s market value is about $3 billion, i.e. doable. This has many talking about the possibility of Lehman going private. Lehman’s employees have traditionally been large holders of the companies’ shares and they can’t be happy as they’ve seen the firm’s market value drop substantially (over 90% this year) and they won’t want to see their shares bought on the cheap by somebody else. Plus, nobody wants to see Paulson’s bazooka if we don’t have to. Let their be a private solution!
The proverbial rumor mill has been in full force with everyone talking the past few days about Lehman looking into a take private. Dealbreaker’s editor John Carney wrote an article on the subject of why he thinks the firm can’t go private, then countered with a very good post as a guest columnist over at PEHub on lessons Lehman could learn from private equity. Clearly there are obstacles to such a deal being done: Lehman is already highly leveraged, employees own 30-35% of the shares in the company (i.e. they have the most to gain if the market agrees that Lehman is currently undervalued), such a move would risk counter-parties exiting in mass, regulatory issues will certainly arise, and then there’s the simple matter of who would actual do this deal. If it were to go private, I’m in agreement as to what others have said that Lehman would have to use SOX to its advantage, rather than looking at it with typical contempt.
The ibanks all used to be private partnerships and largely moved away from this setup as the lure of the capital markets became too enticing. When the markets were booming no one gave a second thought to being public, now that this past cycle has run it’s course and ghosts of the late 80’s/early 90’s are dancing in people’s heads, the old format of being private looks all the more attractive. Banks have notoriously short memories and this current period will prove no different.
Unsurprisingly I’m all for firms going dark, so long as there’s a right time and circumstance for it. At this time a take private may be the best move in an ideal world for Lehman as other options may not be favorable (issuing stock would be a mistake, and finding a buyer won’t be easy), but it’s probably not realistic. The firm could take action and spin off units and subsidiary’s such as the oft mentioned Neuberger Berman (or a host of smaller units such as the former Crossroads Group) as it tries to either ride this out or make itself more attractive to a buyer (Lehman’s business could fit in nicely with a couple of the European banks). Regardless it’ll be fun to watch this play out…with all the banks!