Dec. 9 (Bloomberg) -- Blackstone Group LP and Lexington Partners Inc., the U.S. private-equity firms, are among five final bidders for the U.S. and European merchant-banking assets of bankrupt Lehman Brothers Holdings Inc., according to two people involved in the auction.

Barclays PLC, the U.K.’s third largest bank, Pamplona Capital Management, a London-based private-equity firm, and an unidentified industrial group also made it to the last round of bidding, one of the people said, speaking on condition of anonymity because the auction process isn’t public.

Proceeds from Lehman’s private-equity unit, which includes merchant banking, may amount to about $1 billion, one of the people said, a fraction of the $27 billion that the unit managed because the bank co-owned assets with other investors and mainly served as a general partner for the funds. In addition, a rush by crippled financial firms and university endowments to unload assets has flooded the market, driving down prices amid a deepening global recession.

Lazard Ltd., which is managing the sale of Lehman’s assets with the bank’s creditors committee, will probably pick the winning bidder by the end of this month, the two people close to the situation said. The sale also attracted interest from firms including France’s Axa Private Equity and New York-based Perella Weinberg Partners, said one of the people. The deal also needs the approval of U.S. bankruptcy Judge James Peck.

Spokesmen for Blackstone and Barclays declined to comment. Representatives from Lexington, Pamplona, Axa weren’t available to comment. Perella Weinberg spokeswoman Renee Soto declined to comment.

Lehman’s merchant-banking unit is selling its management companies and direct investments in funds that bought stakes in firms including Angelica Corp., the Chesterfield, Missouri-based hospital linens provider, and SRAM Corp., the Chicago-based maker of bicycle components. Lehman’s private-equity unit is also trying to sell its venture capital and real estate funds in two separate auctions.

Lehman, once Wall Street’s fourth-biggest securities firm, filed for the largest bankruptcy in U.S. history on Sept. 15.

To contact the reporter on this story: Serena Saitto in New York at ssaitto@bloomberg.net.

Last Updated: December 9, 2008 17:11 EST