Lehman gets go-ahead to match Zell's Archstone offer

NEW YORK Wed Jan 11, 2012 12:04pm EST

Sam Zell, Chairman and President, Equity Group Investments LLC and Chairman and CEO, Tribune Company, speaks during a panel discussion on ''Commercial Real Estate: Identifying the Opportunities'' at the 2009 Milken Institute Global Conference in Beverly Hills,California April 27, 2009.  REUTERS/Fred Prouser

Sam Zell, Chairman and President, Equity Group Investments LLC and Chairman and CEO, Tribune Company, speaks during a panel discussion on ''Commercial Real Estate: Identifying the Opportunities'' at the 2009 Milken Institute Global Conference in Beverly Hills,California April 27, 2009.

Credit: Reuters/Fred Prouser

NEW YORK (Reuters) - A bankruptcy judge on Wednesday gave Lehman Brothers Holdings Inc LEHMQ.PK the go-ahead to match a $1.325 billion offer from Sam Zell's Equity Residential (EQR.N) for a stake in apartment company Archstone.

The move would give Lehman a total ownership stake of 73.5 percent in Archstone, and is a key step in its plan to ultimately acquire and sell the entire company for the benefit of its creditors in bankruptcy.

Lehman, which currently owns 47 percent of Archstone, had sued Bank of America Corp (BAC.N) and Barclays Plc (BARC.L), which own the other 53 percent, for attempting to sell half their share -- 26.5 percent of the company -- to Equity Residential. Equity Residential, chaired by billionaire Zell, is one of Lehman's key real estate competitors.

Lehman had a right to match Zell's offer with court approval, and Lehman received that approval at Wednesday's hearing in U.S. Bankruptcy Court in Manhattan.

Zell can now bid on the second half of the banks' stake in Archstone, an offer that Lehman can also match if it is willing to overcome what will likely be a higher bid price and hefty breakup fee.

Lehman had argued it should have the first bite at the second half of the stake, saying it would be irreparably harmed if forced to choose between a bidding war with Zell or a partnership with Equity Residential.

The banks characterized the case as a money dispute, saying Lehman was using the court to try to avoid a bidding war. Archstone is one of Lehman's most valuable assets and a key piece of its plan to liquidate its holdings and pay back its creditors.

Lehman's $65 billion creditor payback plan was approved last month by Bankruptcy Judge James Peck. Lehman hopes to exit bankruptcy and begin paying back creditors in the next few months.

Lehman bought Archstone in 2007 in a $22 billion buyout. The banks, which provided bridge financing, became part owners after the buyout was restructured.

Zell's interest in Archstone came amid rising property values in the U.S. apartment sector, as a growing number of Americans unable or unwilling to buy homes end up renting.

Archstone owns nearly 60,000 apartments in the United States and 14,000 in Germany.

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 Nick Brown, editing by Dave Zimmerman)

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