Lehman receives KDB offer; Energy East merger approved; Liberty Entertainment announces share swap

By Aaron Hochman-Zimmerman

New York, Sept. 3 - Eyes from all over the market were on Lehman Brothers Holdings Inc. as investors hoped to avoid another market-shaking failure of a major financial firm.

Help came in the form of the Korea Development Bank, which offered up a capital injection to help right the listing Lehman.

Still, no answer to KDB's offer letter was made public.

Elsewhere, New York State regulators approved the acquisition of Energy East Corp. by Spain's Iberdrola SA.

Anti-competitive issues delayed the deal, but the persistent Spanish energy firm has not yet accepted the conditions New York placed on its approval.

Also, Liberty Entertainment Group announced an expected stock swap program designed to ensure tax efficiency.

Meanwhile, the market as a whole felt restless on a choppy day. The Dow Jones Industrial Average ended slightly better by 15.96, or 0.14%, at 11,532.88, while the Nasdaq Composite Index fell 15.51, or 0.66%, to finish at 2,333.73.

The S&P 500 slipped just 2.59, or 0.20%, to close at 1,274.98.

KDB looks over Lehman

Shares of Lehman inched up as investors were attracted by further discussions surrounding a possible capital infusion.

As the ghost of Bear Stearns loomed over Lehman and its trouble with the credit crisis, many were expecting help to come in the form of some sort of deal.

The likely lifeguards seem to be the Korea Development Bank along with a consortium of Korean partners including Woori Finance Holdings and Shinhan Financial Group, according to a trader who focuses on financials.

At the close, the leader of the consortium, KDB, was still waiting on Lehman to respond to a letter in which KDB offered to buy a 25% stake in Lehman. The offer is estimated to be worth between 5 trillion won and 6 trillion won.

However, the KDB proposal goes further. If Lehman accepts the offer in its current form, the Seoul-based development lender will have the right to increase its stake in Lehman up to 49%, the trader said.

Also, adding to Lehman's woes on Wednesday was Ospraie Management LLC's decision to close its flagship fund.

Reports said Ospraie, which was 20% owned by Lehman, was too heavily involved in bullish commodity investments.

The question of whether or not the acquisition will go through is currently subject "mixed signals," a market source said.

"The consortium [is] interested, but the finance minister expressed some doubts," he said about South Korean finance minister Kwon Oh-kyun.

Still, "the rumors are persistent," which lends a feeling of legitimacy to the gossip, he said.

Shares of Lehman Brothers (NYSE: LEH) took on $0.81, or 5.02%, to close the day at $16.94.

New York approves Iberdrola acquisition

The Spanish windmill conquest of upstate New York took one step closer to becoming a reality on Wednesday as the New York State Public Service Commission approved the acquisition of Energy East by Iberdrola.

Still, approving the takeover of Energy East, the provider of nearly 40% of New York State's energy, did not come without a set of conditions and encouragement for Iberdrola to lean towards wind power.

If Iberdrola accepts, customers will be given rate discounts to amount to $275 million, according to the statement released by the commission.

Also, the company will be required to set aside $200 million - double the original amount proposed - to develop wind power technology.

Plus, if Iberdrola fails to invest another $100 million it will be penalized $25 million of shareholder funds to be used for economic development projects.

"Iberdrola is required to file a written statement of the acceptance of the Commission's order before any closing of the proposed acquisition," the release added.

On the news, shares of Energy East (NYSE: EAS) added $0.69, or 2.53%, to end trading at $28.01.

Liberty Media announces stock swap

Liberty Media's board of directors approved a swap of tracking stock shares for equity-backed shares of a subsidiary, but "that's not anything surprising," said Janco Partners analyst April Horace.

"Liberty had to hold on to the investment for six months to preserve tax efficiency," she said.

Liberty is going through a consolidation process which will involve the Securities and Exchange Commission, Horace said, and it may not respond for another month, she said.

At the end of the process Liberty Media may buy DirecTV, DirecTV may buy Liberty Media, or nothing may happen, she said.

For now, "the stock has had a good run," she said.

"It hit a 52-week high last week," she said, as the stock hit $28.64 per share.

Still, negotiations will continue with DirecTV over the value of its assets.

"Liberty Media historically trades at a significant discount because no one gives solid value to the private assets," Horace said.

Shares of Liberty Media (Nasdaq: LMDIA) improved by $0.41, or 1.51%, to finish the session at $27.53.

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