An investment company controlled by South African billionaire Johann Rupert is in talks about the buy-out of Lehman Brothers Inc's merchant banking business. Luxembourg-based Reinet Investments said it was in talks with the Lehman bankruptcy estate and investors in the funds managed by the merchant banking division. There was no formal agreement, but a further announcement would be made.
"We're in discussions to take an interest in the funds and potentially take an interest in the management," Reinet Chief Financial Officer Alan Grieve said in a telephone interview. "It's a small interest, but potentially interesting for Reinet," he added, declining to give further details. A source familiar with the situation said on Thursday Lehman Brothers had reached an agreement in principle to sell its merchant banking business, made up of two private equity funds, to management of the funds.
The business to be spun out would also take in new investment from the Rupert family, the source said. Lehman Brothers Holdings Inc filed for bankruptcy protection in mid September after trying to finance too many risky assets with too little capital. It has been selling various assets since then. The price for the proposed deal is unclear. The funds have about $4.5 billion in assets, which includes money invested and money still to be drawn down from the limited partners.
Reinet was created last year when the Rupert family-controlled luxury group Richemont was restructured and its stake in British American Tobacco spun off. The company, which owns about 4 percent of BAT, has a net asset value of more than 2 billion euros ($2.69 billion) and a deal on the Lehman assets would be its first significant investment. It would not have a major impact on profit or net asset value, Reinet said.
By 0718 GMT, Reinet depository receipts in Johannesburg gained 1.09 percent to 10.16 rand, outpacing a weaker Top-40 index of blue chip shares. Under the proposed deal, Lehman's bankruptcy estate will retain a substantial interest in the funds, the source said. The proposed deal is subject to consent from the investors in the funds, known as limited partners.
A formal auction was run for the assets by Lazard on behalf of Alvarez & Marsal, Lehman's restructuring advisors, the source said. Investors in the funds include the Pennsylvania Public School Employees' Retirement System, the New York City Retirement System and fund manager Caisse de depot et placement du Quebec, the source said.