Bloomberg News

Lehman Matches Zell’s $1.33 Billion Bid for Archstone Stake

December 16, 2011

(Updates with comment from Equity Residential in fifth, sixth and 14th paragraphs.)

Dec. 15 (Bloomberg) -- Lehman Brothers Holdings Inc. told Bank of America Corp. and Barclays Plc it would buy half their stake in Archstone, owner of apartments in the U.S. and Germany, for $1.33 billion, matching an offer by Equity Residential, according to a person with knowledge of the deal. Lehman mailed its offer to the banks last night, meeting a deadline to exercise its right to buy the stake, said the person, who asked not to be identified because the process is confidential. The purchase of 26.5 percent of Archstone is a bid by Lehman to get control of its biggest real estate asset.

The bankrupt securities firm, which has approval for a $65 billion liquidation plan, will ask a judge to let it use some of the Lehman estate’s cash to increase its stake in Archstone to 73.5 percent from 47 percent with the cash offer, according to another person familiar with the plans.

The offer shifts the onus to Sam Zell’s Equity Residential to exercise its option to buy the other 26.5 percent of Archstone held by Bank of America and Barclays. Equity Residential, the largest publicly traded U.S. apartment landlord, has said it would like to own all of Archstone to gain properties in major U.S. markets at a time when rental demand is rising and the national vacancy rate is at a five-year low.

Equity Residential hasn’t decided whether to exercise its option for the second piece and won’t make a determination until Lehman completes its purchase of the first interest, said Marty McKenna, a spokesman for the Chicago-based company.

‘Nothing to Do’

“There’s nothing to do here until if and when they close on the first piece,” McKenna said in a telephone interview today. “It’s nonbinding, so that’ll have to carry out before we start to make a determination about the second 26.5 percent. There’s certainly been no determination about a price for the second piece.”

Lehman has disagreed with Bank of America and Barclays over how best to extract value from the apartment landlord. Lehman favored waiting for a public offering or sale of the entire company, and Bank of America and Barclays sought to sell their combined 53 percent interest as soon as possible.

The two banks on Dec. 2 agreed to sell Equity Residential half of their stake and granted it an option to buy the second half for $1.33 billion or more. Lehman has the right to match any offer from Zell, chairman of Equity Residential, for the second piece.

Sell or Liquidate

Lehman seeks to sell or liquidate Archstone for at least $6 billion of equity value, according to a person with knowledge of the plan. Its strategy depends on taking over Archstone, said that person, who asked not to be named because the money-raising efforts are private.

Archstone was acquired by Lehman in a $22 billion leveraged buyout with Tishman Speyer Properties LP in October 2007 as commercial real estate prices peaked. Lehman, saddled with debt, filed for the biggest bankruptcy in U.S. history in September 2008, as credit markets froze worldwide.

Lehman has until Dec. 25 to file a motion on its matching bid with the bankruptcy court and until Jan. 24 to get court approval for its purchase, two people with knowledge of the timetable said. Lehman also must obtain financing by the January deadline, said one of the other people.

Part of Process

Lehman along with its affiliates has about $23 billion of available cash, according to court papers.

Kimberly Macleod, a spokeswoman for Lehman, and Brandon Ashcraft, a Barclays spokesman, both declined to comment. Kerrie McHugh, a spokeswoman for Charlotte, North Carolina-based Bank of America, said she had no immediate comment.

“This is just part of a process that will carry out over the next 40 days or so,” said McKenna of Equity Residential.

As of Sept. 30, Archstone had stakes in about 428 apartment complexes with about 74,000 units, including some under construction, according to the company. The total comprises 179 properties with about 60,000 units in the U.S. and 249 sites with about 14,000 units in Germany.

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

--Editors: Daniel Taub, Kara Wetzel

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; John Pickering at jpickering@bloomberg.net


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