Lehman Brothers Merchant Banking Partners II L.P., the merchant banking arm of Lehman Brothers Holdings (NYSE:LEH), today announced that it and Hercules Incorporated (NYSE:HPC) have formed a new market-leading food gums company named CP Kelco by merging the food gums division of Hercules with the Kelco biogums unit of Pharmacia Corporation (NYSE:PHA). The new private company is 71%-owned by Lehman Brothers' partnerships and 29%-owned by Hercules.

CP Kelco is the global leader in the growing hydrocolloids (thickeners and stabilizers) market, with no. 1 positions in xanthan and pectin and a strong position in carrageenan. CP Kelco has revenues of approximately $470 million, 2,500 customers in 100 countries, headquarters in Delaware, and facilities in North America, Europe, Asia and Latin America. Approximately 46% of sales are in the Americas, 33% in Europe, the Middle East and Africa and 21% in the Asia Pacific region.

The formation of CP Kelco was funded with $420 million in equity ($300 million from Lehman Brothers Merchant Banking Partners II L.P. and $120 million retained equity from Hercules) and $825 million in committed debt financing ($725 million of funded long-term debt and $100 million of committed working capital lines).

CP Kelco's hydrocolloids are derived from natural raw materials such as seaweed, citrus peels, and corn and wheat syrup, and are used in a variety of applications across a wide array of industries due to their ability to modify the physical properties of water-based solutions. Specific applications range from stabilization of jams and jellies and acidified milk drinks, gelling of water and dairy desserts, stabilization of cooked and poultry products, and suspending ingredients in salad dressing to providing gelling properties for toothpaste, ensuring uniformity in self-leveling cement and increasing efficiencies in oil drilling.

"The combination of the Hercules food gums division and Kelco's biogums unit is a superb strategic fit that brings together two market-leading companies with complementary product lines, technologies, geographies, customers and end-user markets to create the global leader in the steadily growing hydrocolloids market," said Harry Tucci, Chairman and CEO of CP Kelco. "Hercules Food Gums and Kelco have a shared commitment to delivering customers high value-added products with a strong emphasis on quality and service. By joining both companies' outstanding sales and marketing forces, as well as highly complementary, yet distinct product lines, CP Kelco will be extremely well positioned to better serve customers' needs."

Tucci added, "With the industry's most comprehensive product portfolio - and the combined technological resources and manufacturing expertise of Hercules food gums and Kelco - we will have an enhanced competitive platform and a broad range of opportunities for continued growth in key markets, including food ingredients, personal care, industrial and oil field."

CP Kelco's senior management team will be led by Tucci, a former Hercules senior executive. Jerome Hunter, previously Vice President and General Manager of Hercules' FiberVisions subsidiary, is Chief Financial Officer.

In addition to revenue enhancement opportunities, CP Kelco expects to achieve significant cost savings through scale efficiencies, eliminating redundant operations and a continued focus on reducing manufacturing, sales and marketing costs.

For more information, visit the CP Kelco website at www.cpkelco.com.

Hercules manufactures chemical specialties used in making a variety of products for home, office and industrial markets.

The Lehman Brothers Merchant Banking Partners II L.P. is a $2.0 billion institutional private equity fund focused on investments in established operating companies in the U.S. and internationally.