Barclays Buys Lehman's US Broker-Deal Unit - Statement

Barclays announces agreement to acquire Lehman Brothers North American investment banking and capital markets businesses

'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.

Commenting on this announcement, John Varley, Barclays Group Chief Executive, said:

'The proposed acquisition of Lehman Brothers North American investment banking and capital market operations accelerates the execution of our strategy of diversification by geography and business in pursuit of profitable growth on behalf of our shareholders, in particular increasing the percentage of Barclays earnings sourced in North America. This transaction delivers the strategic benefits of a combination with Lehman Brothers core franchise, whilst meeting Barclays strict financial criteria, and strengthening our capital ratios'.

Robert E Diamond Jr, Barclays President, said:

'This is a once in a lifetime opportunity for Barclays. We will now have the best team and most productive culture across the world’s major financial markets, backed by the resources of an integrated universal bank. We welcome the opportunity to add Lehman’s people and capabilities to the Barclays team'.

Herbert H McDade III, Lehman Brothers Chief Operating Officer, said:

'Lehman Brothers strength has always been our client franchise. With this transaction, we have the opportunity to continue the growth and development of our US investment banking and capital market franchises with one of the leading financial institutions in the world. Together with Barclays, these businesses will be a part of a global financial services powerhouse delivering a comprehensive suite of products and services to our clients'.

1. Transaction Structure

The Lehman Brothers operations to be acquired in the transaction (the ‘Acquisition’) have approximately 10,000 employees, trading assets currently estimated to have a value of £40bn (US$72bn), and liabilities currently estimated to have a value of £38bn (US$68bn). The Lehman Brothers operations include Lehman Brothers North American fixed income and equities sales, trading and research and investment banking businesses (the ‘Lehman Brothers businesses’). Lehman Brothers will receive £0.14bn (US$0.25bn) in cash as consideration for the Lehman Brothers businesses.

Barclays has also agreed to acquire Lehman Brothers New York Head Office at 745 Seventh Avenue and two data centres in New Jersey for close to their current market value, estimated at £0.8bn (US$1.5bn). The combined consideration totals some £1.0bn (US$1.75bn).

The Acquisition is subject to a number of conditions including the approval of the United States Bankruptcy Court for the Southern District of New York. Lehman Brothers is filing an emergency motion with the Bankruptcy Court to seek a hearing to obtain approval for the Acquisition. The Acquisition is also subject to certain usual conditions including receipt of necessary regulatory approvals and US antitrust clearances. The agreement for the Acquisition may be terminated if it is not completed by 24 September 2008.

2. Transaction Benefits

The Acquisition will combine two strong client franchises and product offerings, with the potential to create significant value for Barclays shareholders. The Lehman Brothers businesses are a highly complementary fit for Barclays investment banking business, Barclays Capital. The combined business will be a premier global investment bank with an increased presence in the US and an enhanced product offering. Among other benefits, the combination of the two businesses will:

§ confirm Barclays Capital as a leading debt capital markets house globally;

§ have a top 3 position in the US capital markets, the largest in the world;

§ extend Barclays Capital’s range of investment banking products, with the addition of Lehman Brothers strong US M&A and equity capital markets franchises; and

§ strengthen Barclays Capital’s hedge fund franchise through the addition of prime brokerage and cash equity capabilities.

The Acquisition will result in the proportion of Barclays revenues derived from the US rising significantly. Given the strong cultural fit, Barclays intends to achieve a rapid integration so as to minimise disruption to employees, clients and counterparties.

3. Barclays Current Trading

Barclays has traded satisfactorily in July and August. The monthly run rate for the Group’s profit before tax in these months was slightly lower than the average for the first half of the year, reflecting usual seasonality. All businesses were profitable.

4. Employees and Management

Barclays believes the Lehman Brothers businesses have an excellent team of people whose skills, capabilities and culture provide a good fit with Barclays and its clients. Barclays looks forward to welcoming them to our team and working together to deliver the combination’s full potential.

The acquired businesses will be merged into Barclays Capital, which forms part of Barclays Investment Banking and Investment Management of which Robert E Diamond Jr, is Chief Executive.

5. Share Issue

Further details of the expected issue of new shares in connection with the Acquisition will be published in due course.

6. Advisers

Barclays Capital, Credit Suisse Securities (Europe) Limited, Deutsche Bank AG, London Branch and JPMorgan Cazenove Limited are acting as financial advisers to Barclays. Credit Suisse Securities (Europe) Limited and JPMorgan Cazenove Limited are joint corporate brokers to Barclays. Clifford Chance LLP and Cleary Gottlieb Steen & Hamilton LLP are acting as legal advisers to Barclays.

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