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* Equity Residential to buy 60 percent of Archstone's assets
* AvalonBay to buy 40 percent of Archstone's assets
* Deal for $6.5 bln in cash and stock for total of $16 bln
* Equity Residential, AvalonBay shares fall after market's close
By Ilaina Jonas
NEW YORK, Nov 26 (Reuters) - Lehman Brothers has agreed to sell the assets of apartment owner Archstone to rivals Equity Residential and AvalonBay Communities Inc for about $6.5 billion in cash and stock and the absorption of debt, bringing the total value of the deal to $16 billion, the companies said Monday.
The deal comes shortly after Archstone filed for a $3.5 billion initial public offering. It also follows an Equity Residential's unsuccessful bid earlier this year to buy the entire company, which includes apartment buildings and communities major U.S. cities.
Under the deal, which is expected to close in the first quarter, Equity Residential will own 60 percent of Archstone's assets and liabilities and AvalonBay will own 40 percent. The transaction does not require approval from Equity Residential or AvalonBay shareholders.
The combined purchase price includes $2.7 billion of cash and stock from Equity Residential and AvalonBay valued at $3.8 billion as well as the assumption of $9.5 billion in debt and $330 million of preferred equity.
In addition to the cash, Lehman and its affiliate, Lehman Commercial Paper Inc, will receive 34.5 million shares, or a 9.8 percent stake, in Equity Residential and 14.9 million shares, or a 13.2 percent stake, in AvalonBay.
In connection with the deal, AvalonBay said it would issue $14.5 million shares of stock to raise cash and repay a portion of the debt it will assume in connection with the Archstone purchase. If the deal doesn't go through, AvalonBay said it would use the proceeds for general corporate purposes.
Equity Residential, whose founder and chairman is real estate mogul Sam Zell, said it would issue 19 million shares to fund a portion of the deal. If the deal fails to occur it would use the net proceeds for working capital and general company purposes.
The deal was announced after the close of the market. Equity Residential shares were trading at $53.05, down from their close of $54.43 on the New York Stock Exchange. AvalonBay shares were at $127.00, down from their close of $128.95.