* Lehman buying last slice of Archstone for $1.58 bln –
sources
* Agrees to drop lawsuit against the banks
* Equity Residential to get $150 mln break-up fee
By Ilaina Jonas
NEW YORK, May 24 (Reuters) – Lehman Brothers Holdings Inc,
one of three owners of Archstone, has reached a deal to buy the
last portion of the apartment company it does not own for $1.58
billion, sources with knowledge of the matter said on Thursday.
Lehman will buy the 26.5 percent of Archstone that it does
not own from Bank of America Corp and Barclays Plc
.
In January, Lehman bought half the banks’ stake, or 26.5
percent of Archstone, for $1.325 billion. That came after
Barclays and Bank of America struck a deal to sell the 26.5
percent stake to Equity Residential, whose chairman is
Sam Zell. Equity Residential was then also given the right to
bid for the banks’ remaining stake.
But Archstone’s ownership structure gave Lehman the right to
match the offer for the first slice. Lehman bought the stake and
later filed a lawsuit against the two banks in the U.S.
Bankruptcy Court in Manhattan.
The fight over Archstone comes against the backdrop of a
strong rebound in the U.S. apartment market, which has
strengthened as Americans, unable to get mortgages, have shifted
from home ownership to renting. And as the economy has firmed,
rents have surged and occupancy is tight in most areas.
Lehman has a 73.6 percent stake in Archstone, with Bank of
America owning 13.9 percent and Barclays 12.5 percent, according
to the lawsuit.
Archstone owns 73,135 apartment units in the United States
and Europe, some in buildings in the most desirable urban areas
in Washington D.C., New York, Boston and Seattle. Equity
Residential owns 121,011 units.
VETO POWER
The last slice of Archstone is critical to Lehman because it
blocks Equity Residential from controlling Archstone’s fate.
Under the ownership structure, unless a party had at least 76
percent stake, all important decisions regarding Archstone
needed to be unanimous.
This would have given Equity Residential, who wanted
Archstone, veto power over compensation, financing, acquisitions
and other important decisions. With the last stake, Lehman can
control Archstone’s fate.
The deal the banks and Equity Residential struck in December
allowed Zell’s company to bid for the last slice of Archstone
should it not get the first slice. The second 26.5 percent stake
carried a price tag of at least $1.325 billion, but that was
later raised to $1.5 billion.
But Equity Residential won’t walk away empty-handed. The
deal gives Zell’s company a break-up fee of $150 million,
sources said. As of the end of last year, Equity Residential had
spent about $4 million in its pursuit of Archstone.
The companies are expected to announce the deal late
Thursday or Friday. The agreement was first reported by the Wall
Street Journal.
Representatives from Archstone and Lehman did not return
phone calls seeking comment.
The agreement also requires Lehman to drop the lawsuit, a
source said.
ROOTS IN CREDIT CRISIS
The unusual triumvirate structure had its roots in the $22.2
billion 2007 Lehman Brothers/Tishman Speyer-led leveraged buyout
of Archstone Smith, one of the largest owners of U.S.
apartments. Lehman and the banks provided $6.4 billion in
secured financing, with Lehman contributing 47 percent, or more
than $3 billion.
As the credit crisis deepened in the subsequent years,
Archstone could not repay some of its loans. Its lenders ended
up with the company in 2010, with Lehman owning 47.3 percent,
and the banks a combined 53 percent – with Bank of America’s
share at 27.7 percent and Barclays at 25 percent.
As the U.S. economy and apartment market improved, the three
looked to extract cash from Archstone. Lehman wanted to return
Archstone to the public market through an initial public
offering.
The banks said they would only consider a private sale of
their interest and did so last summer, according to the lawsuit.
When the deal is done, it will leave Lehman free to find a
partner to help finance Archstone, without triggering the same
provision for the other parties to match it. Lehman has been
talking to at least one possible partner, Ivanho (c) Cambridge, the
real estate investment arm of Canadian pension fund Caisse de
d (c)p ‘t et placement du Qu (c)bec, a source said.
