A management buyout team (MBO) yesterday beat two of America’s biggest private equity firms to buy a majority stake in Lehman Brother’s prized investment management business.

The team led by George Walker, the bank’s global head of investment management, outbid a consortium comprising Bain Capital and Hellman & Friedman in an auction run by the US Bankruptcy Court in New York. A third, unnamed bidder had also been in the auction but only for a select few assets.

Lehman Brothers went bust in September with debts of $613 billion, (£414 billion) making it America’s biggest-ever bankruptcy. Alvarez & Marsal, the defunct investment bank’s liquidators, said that the MBO team’s offer represented greater value and certainty of closing than a $2.15 billion bid from the private equity consortium.

Jim Fogarty, managing director of Alvarez & Marsal, said: “We regard this as the best outcome for the creditors of Lehman Brothers.” Under the terms of the deal, the team will gain control of Neuberger Berman, the highly-regarded asset manager that Lehman Brothers bought for $3.2 billion in 2003, as well as Lehman Brothers Asset Management and the bank’s private funds investment operations. The three divisions oversee assets worth about $160 billion.

The deal will see represent 51 per cent of Lehman’s investment management business go to the MBO team, while Lehman Brothers Holdings, which is overseen by Alvarez & Marsal, will retain 49 per cent. Mr Walker will become chief executive of the spun-off business, to be called Neuberger Investment Management. Joe Amato will continue to run Neuberger Berman as the new company’s biggest operating unit.

The Bankruptcy Court is scheduled to approve the deal on December 22, with the deal likely to close in the first quarter of next year. Mr Walker said: “I am thrilled to be moving forward towards becoming an independent, standalone company.”

Hellman & Friedman and Bain Capital said that they were disappointed to have lost the bidding war but said that they had utmost respect for the senior members of the investment management business’s management team.

The private equity firms had hoped to turn the business into a standalone company and retain key managers. It is the final chapter in a protracted wrangle over the future of Lehman’s investment management business.

Lehman put the business up for sale in August. After the bank’s collapse, its liquidators agreed to sell the business to Bain and Hellman. But in October the Bankruptcy Court said that other interested parties could submit a bid by December 1. The auction was extended three times before closing yesterday.

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