0509_Barclays_Lehman

0509_Barclays_Lehman - Directed Research Spring Semester...

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Directed Research Spring Semester 2009 Research on the Merger and Acquisition between Barclays and Lehman Brothers Under the Direction of Dr. Wendy Jeffus Prepared by: Panitan Sigkhabhand
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May, 2009 Introduction Since June 2008, Lehman Brothers Holding Inc.—a parent company of Lehman Brothers Inc. or “Lehman”—had raised the capital of $4 billion in common equity and $2 billion in convertible stock to safeguard itself from any possible hard-hitting waves that could come after serious precipitation of the most recent global financial crisis. 1 Nevertheless, the extra amount of bad debt of approximately $11.4 billion of mortgage and asset-backed securities and $5.3 billion in US subprime residential mortgage-related assets that piled up in Lehman's balance sheet caused the firm to file for Chapter 11 bankruptcy protection in New York on September 15, 2008, in order to seek the best possible deal from an interested buyer. 2 Under Chapter 11, Lehman was able to operate and make business decisions normally but within the bankruptcy court’s discretion; thus, Lehman could still seek the best possible buyer. 3 Even though a negotiation between Barclays and Lehman did not succeed in the first attempt; the deal was struck swiftly by Barclays’ few days later. 4 Thus, the merger between Barclays Capital and Lehman Brothers Inc. has marked a worthwhile acquisition on the Barclays side—approximately $1.75 billion. 5 This report examines various aspects of the deal which includes impact on share prices, strategies of the acquiring firm, key managerial issues, IT integration, and the emerging financial structure after the deal. Barclays (ticker symbol: BARC.L) Barclays Capital offers financial services in the areas of managing foreign exchange, interest rate, equity and commodity risks. There are three core areas of activities that Barclays Capital specializes in— rates for fixed income, foreign exchange, commodities, emerging markets, money markets, prime services and equity products; credit including loans and investment grade and high-yield bonds; and private equity that involves opportunities to buy privately transacted equities of private companies around the globe. The South African subsidiary, Absa, handles the investment banking tasks in addition to those of Barclays. More details of Barclays’ history can be seen in exhibit 1 in the appendix. Lehman Brothers (ticker symbol: LEH) Lehman operated as a global investment bank that served corporations, governments and municipalities, institutional clients, and wealthy individuals. Lehman engaged fully in the sales 1 N. Moore, Heidi, The Wall Street Journal, “Who Wants to Buy Lehman Brothers?” The Wall Street, June 9, 2008, http://blogs.wsj.com/deals/2008/06/09/who-wants-to-buy-lehman-brothers/ .
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0509_Barclays_Lehman - Directed Research Spring Semester...

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