Bloomberg News

Lehman Said to Seek $2.6 Billion to Buy Control of Archstone

December 12, 2011

Dec. 7 (Bloomberg) -- Lehman Brothers Holdings Inc. is trying to raise about $2.6 billion to buy a controlling stake in Archstone, its biggest real estate asset, as part of a plan to sell or liquidate the apartment owner for $6 billion or more, according to a person familiar with the plan.

Lehman’s strategy depends on getting control of the company, said the person, who declined to be named because the money-raising efforts are private. Lehman is seeking to raise money in talks with investors including Blackstone Group LP and Brookfield Asset Management Inc., said another person familiar with the plan, who asked not to be identified because the negotiations are private.

Bankrupt Lehman said in a filing that Archstone is worth “at least” $1 billion more than the $5 billion equity value implied by a bid for part of the company by Equity Residential, founded by Sam Zell. Equity Residential said on Dec. 2 that it had offered Bank of America Corp. and Barclays Plc $1.33 billion for 26.5 percent of Archstone, or about half of their stake.

The deal is contingent on Lehman not exercising its right to match the offer, the Chicago-based company said. Lehman, which won approval yesterday for a $65 billion liquidation plan after more than three years in bankruptcy, would need to raise $2.6 billion to buy the banks’ controlling 53 percent stake, based on the Zell company’s price. Lehman currently owns 47 percent of Archstone.

Value of Platform

“Lehman believes that the EQR purchase price does not take into consideration the value of Archstone’s platform, including its management, which Lehman believes is the best in the industry, nor does it take into account Archstone’s valuable strategic position within the apartment industry,” the company said in yesterday’s filing with the U.S. Securities and Exchange Commission.

Kimberly Macleod, a Lehman spokeswoman, declined to comment on the firm’s plans for Archstone.

Archstone, which Lehman acquired in a $22 billion leveraged buyout with Tishman Speyer Properties LP, has ownership interests in hundreds of apartment developments from Washington and New York to San Francisco.

Lehman, which is selling some assets and buttressing others for a future sale, fetched $3.9 billion through June 30 from property sales, according to court papers. Chief Executive Officer Bryan Marsal has said real estate sales will continue through 2014.

Notice Period

Lehman faulted Bank of America and Barclays in its filing, saying they didn’t provide their partner with enough information to trigger a 10-day notice period for matching Equity Residential’s offer.

The banks and the bidding company chose to disclose the bid just before a court hearing on Lehman’s liquidation plan “to optimize the chance Lehman will not exercise its rights,” according to the filing.

The banks failed to comply with other another aspect of the agreement they made with Lehman when they gave Equity Residential an option to buy an additional 26.5 percent of Archstone if Lehman didn’t match the offer on the first piece, Lehman said in the filing.

Brandon Ashcraft, a spokesman for Barclays, said he had no immediate comment. Representatives for Bank of America and Equity Residential didn’t immediately respond to requests for comment.

The case is In re Lehman Brothers Holdings Inc., 08-13555, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

--Editors: Daniel Taub, John Pickering

To contact the reporters on this story: Hui-yong Yu in Seattle at hyu@bloomberg.net. Linda Sandler in New York at lsandler@bloomberg.net.

To contact the editors responsible for this story: Kara Wetzel at kwetzel@bloomberg.net; or John Pickering at jpickering@bloomberg.net.


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