Lehman, banks set to square off over Archstone

(Reuters) - Lehman Brothers Holdings Inc LEHMQ.PK will try to thwart the plan by Barclays Plc (BARC.L) and Bank of America Corp (BAC.N) to sell a big stake in apartment company Archstone to a rival led by billionaire real estate mogul Sam Zell.

A mini-trial is set to begin on Thursday in U.S. Bankruptcy Court in Manhattan on Lehman's request to block the proposed $1.325 billion sale pending a lawsuit that could alter or derail the deal.

Bank of America and Barclays are trying to sell half of their 53 percent stake in Archstone to Zell's Equity Residential (EQR.N). But Lehman, which owns the remaining 47 percent, says the proposed sale of the 26.5 percent stake violates existing contracts governing the sale of Archstone.

Lehman had sued to block the sale last month. It is unclear whether the case will go to trial, but a pretrial conference is scheduled for next month.

Lehman's Archstone stake is a key part of its plan to exit bankruptcy and pay back creditors. The $65 billion payback plan involves liquidating assets for the benefit of creditors, and Archstone is among Lehman's most valuable assets.

Giving Zell's firm an ownership stake, Lehman argued in court papers, would decrease return for creditors because it would effectively give Equity Residential veto power over how the company is managed.

Lehman said it has a contractual right to match Equity Residential's offer, and if successful should be allowed to block Zell's company from buying the banks' remaining 26.5 percent stake. It said it would suffer "irreparable harm" without an injunction.

Barclays and Bank of America opposed Lehman's request, saying the issue is merely a monetary dispute. The banks accused Lehman of seeking an unfair advantage in price negotiations.

Archstone owns nearly 60,000 apartments in the United States and 14,000 in Germany. Lehman bought Archstone in 2007 in a $22 billion buyout.

Deciding what to do with the company has long been a thorny issue, and one in which Lehman and its co-owners have been at odds. Thursday's mini-trial may warrant two days of arguments, with U.S. Bankruptcy Judge James Peck planning to devote Thursday and Friday to the case if necessary.

Equity Residential has also asked for permission to intervene in the dispute.

Lehman's record-breaking bankruptcy on September 15, 2008, contributed to the global financial meltdown. The company hopes to officially emerge from Chapter 11 protection and begin paying back creditors within the next few months.

The case is Archstone LB Syndication Partner LLC et al v. Banc of America Strategic Ventures Inc et al, U.S. Bankruptcy Court, Southern District of New York, No. 11-2928.

Lehman's bankruptcy case is In re Lehman Brothers Holdings Inc, in the same court, No. 08-13555.

(Reporting by Nick Brown; Editing by Gary Hill)