Sept. 17 (Bloomberg) -- Barclays Plc, the U.K.'s third- biggest bank, will acquire the North American investment-banking business of bankrupt Lehman Brothers Holdings Inc. for $1.75 billion, three days after abandoning plans to buy the entire firm.

Barclays rose as much as 11 percent in London trading after it agreed to pay $250 million in cash for the Lehman operations and $1.5 billion for the New York headquarters and two data centers, it said today in a statement. The London-based bank plans to raise at least 600 million pounds ($1.1 billion) in a stock sale to help fund the deal and may buy other Lehman units.

Lehman becomes the second Wall Street institution after Merrill Lynch & Co. to lose its independence in the industry's biggest retrenchment since the Great Depression. Barclays President Robert Diamond seized a ``once in a lifetime opportunity'' to buy a business ranking seventh in advising on U.S. mergers and employing about 10,000, almost two-fifths of Lehman's total, after it filed the biggest bankruptcy in history on Sept. 15.

``It looks a steal,'' said Leigh Goodwin, a London-based analyst for Fox Pitt Kelton Ltd. ``The money they are raising may also allay concerns that they may not have had enough capital to do this deal.''

Barclays rose 17 pence to 325 pence at 10:20 a.m. London time, valuing the company at 26.6 billion pounds.

Barclays plans to ``immediately commence discussions'' to buy Lehman operations outside the U.S., New York-based Lehman said in a separate statement.

`Wonderful Outcome'

``This is a wonderful outcome for a great number of our employees that will preserve and strengthen our terrific franchise,'' Lehman Chief Executive Officer Richard Fuld said in a separate statement.

The purchase price of Lehman's assets is on par with the market value of Sanders Morris Harris Group Inc., a Houston, Texas-based brokerage with 617 workers, and is less than a third of the value of KBW Inc., a New York-based firm that employs 529.

``Certain Barclays shareholders have expressed support for the transaction and interest in increasing their shareholdings, Barclays said. Further details of the share issue will be announced due course it said.

Lehman is selling off pieces of itself that weren't included when the holding company filed for bankruptcy. Diamond said last month he wants the bank to take market share from Wall Street firms weakened by the credit crunch and break into the ``top tier'' of U.S. securities firms.

M&A Rankings

The purchase includes the equities and fixed-income sales, trading and research businesses, commodities and foreign exchange, merger advisory and prime brokerage units, Barclays said.

Lehman slipped to seventh in advising on mergers and acquisitions involving U.S. companies this year from fifth in 2007, according to data compiled by Bloomberg. Barclays ranks 35th in that market.

Lehman is in discussions to sell its investment-management unit to private-equity bidders Bain Capital LLC and Hellman & Friedman LLC, according to people familiar with the negotiations. The firm is also proceeding with an auction announced last week as part of Chief Executive Officer Richard Fuld's failed plan to save the 158-year-old firm.

Diamond was in New York last weekend as Lehman met with Wall Street executives to discuss a rescue plan. Lehman needed a bailout after Korea Development Bank pulled out of a plan to provide new capital and Lehman shares lost most of their value.

Walking Away

Barclays declined to bid for all of Lehman after three days of emergency negotiations involving the U.S. Treasury and Federal Reserve, Barclays spokesman Leigh Bruce said Sept. 14. Barclays couldn't get guarantees from the government to mitigate what it called Lehman's ``open-ended'' trading obligations.

Bank of America Corp. also walked away from a possible Lehman acquisition over the weekend.

``Clearly Barclays's negotiating position is strong, which suggests a value-creating deal,'' said JPMorgan Cazenove Ltd. analysts in an e-mail note to clients before the deal was announced. ``Investors will want reassurance on the impact on Barclays's capital,'' said the analysts, who rate Barclays ``neutral.''

Credit Suisse Group, Deutsche Bank AG and JP Morgan Cazenove Ltd. were finance advisers on the deal, Barclays said.

Lagging Behind

Barclays's so-called core equity Tier 1 capital ratio, a closely followed measure of a bank's ability to absorb losses and writedowns, rose to about 5.8 percent from 5.1 percent after it raised 4.5 billion pounds in a share sale in June. Barclays's ratio lags behind U.K. peers including HBOS Plc and Royal Bank of Scotland Group Plc.

CEO John Varley, 52, said in June that Barclays would use half the proceeds for growth, including acquisitions. Barclays sold shares to sovereign funds in Qatar, Singapore and China.

The deal, which requires legal and regulatory approval, ``accelerates the execution of our strategy of diversification by geography and business in pursuit of profitable growth on behalf of our shareholders,'' Varley said in the statement.

While Barclays ``traded satisfactorily'' in July and August, the average pretax profit in the two months through August was below the average for the first six months of the year, it said ``reflecting usual seasonality.''

Barclays Capital, the bank's London-based securities arm, has 16,000 employees and contributes about 16 percent of Barclays's earnings, down from 39 percent a year ago. First-half pretax profit slumped 69 percent to 524 million pounds after the unit wrote down 2.8 billion pounds of subprime and Alt-A mortgages and other assets damaged by the credit turmoil.

Barclays's highest priority is to sell or liquidate troubled assets, Diamond said Aug. 7.

Lehman ranked No. 7 in global equity underwriting this year, according to data compiled by Bloomberg. Barclays, which wasn't listed among the top 25 on the list, could also use Lehman to increase its share of bond underwriting in the U.S. and add mergers and acquisitions advice worldwide.

To contact the reporters on this story: Ben Livesey in London at blivesey@bloomberg.net; Yalman Onaran in New York at yonaran@bloomberg.net.

Last Updated: September 17, 2008 03:15 EDT