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Lehman Bankruptcy to Impact SRAM Deal?

Published September 15, 2008

CHICAGO, IL (BRAIN)—The Chapter 11 filing of Lehman Brothers Holdings (LBHI), the largest bankruptcy filing in history, rocked the financial world Monday, will have little impact on SRAM’s equity partnership deal with Lehman Brothers Merchant Banking (LBMB), according to Stan Day, SRAM’s chief executive officer.

“Everything is happening as we speak so I don’t think the facts of what this will mean are out there yet,” said Stan Day, SRAM’s chief executive officer. “LBMB, while an affiliate subsidiary of Lehman Brothers, only receives 15 percent of its financing from them, 85 percent of their money comes from other investors.

“So right now there looks to be very little impact on LBMB by the filing, and the deal will close as scheduled during the first week in October,” Day said. Lehman Brothers is set to buy 40 percent of the company and will be represented by two seats on SRAM’s seven seat board.

Nevertheless, it is quite possible that many companies providing outside financing to LBMB were dependant on LBHI for their own financing. It is this complicated financial architecture that makes it impossible to foresee the impact of LBHI’s bankruptcy.

Assessing the continuing financial turmoil at Lehman Brothers, Day acknowledges that the deal may get extended beyond its October closing.

“SRAM is financially sound and completely capable of moving forward without the LBMB investment,” Day said. “If the deal completely falls through then all that means is we will continue to look for an outside investor.”

In its filing, LBHI said it continues to explore the sale of Investment Management Division, which includes LBMB. Again, what this means for the SRAM deal is not clear.

“We’ve got front row seats at the stadium now and we are watching the players closely. But at the end of the game we can walk away and return to our business as usual,” Day added.

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