Judge Denies Lehman Bid To Halt Banks' Archstone Sale To Zell
January 06 2012 - 1:07PM
Dow Jones News
A judge on Friday said Bank of America Corp. (BAC) and Barclays
PLC (BCS) could move forward with a $1.33 billion sale of half
their stake in the Archstone apartment company to Sam Zell's Equity
Residential (EQR), calling Archstone co-owner Lehman Brothers
Holdings Inc.'s (LEHMQ) bid to halt the deal an attempt to get the
stake for itself at a lower price.
Judge James Peck of the U.S. Bankruptcy Court in Manhattan said
Lehman couldn't prove it would face irreparable harm if the sale
went through. Lehman was seeking a preliminary injunction that
would have halted the banks' sale of half of their 53% Archstone
stake to Zell, a stake that Lehman most likely will end up
purchasing anyway.
Rather than a sale to Zell, Peck called the banks' deal "a
disguised sale of 100% of the banks' interest to Lehman," which has
a right of first refusal to buy half the banks' stake and a similar
right to buy the other half later. "I see that and I think
everybody in the courtroom does too," he said.
A key issue in the dispute was an option for Equity Residential
to bid on the remaining half of the banks' Archstone stake if
Lehman exercises its right of first refusal to buy the first half.
Essentially, Lehman wants to step in and pay the banks the $1.33
billion to acquire the 26.5% stake that Zell is trying to buy.
Lehman then wants to purchase from the banks the other 26.5% of
Archstone for that same price and stave off a bidding war with
Equity Residential.
Lehman, which is still under bankruptcy protection, needs court
approval to match Zell's bid. Peck, in ruling that the Zell sale
process could go forward, said "it is not a negative for Lehman to
be put in a position of acquiring all of the equity. Rather, this
truly is about the price," echoing earlier comments from a lawyer
for Barclays.
Lehman's own real estate co-head Thursday gave a "conservative"
estimate of about $1.445 billion to purchase the second half of the
banks' stake.
Edwards Wildman Palmer LLP's Craig M. White, a lawyer for Equity
Residential, said during his closing argument that Zell's
participation in the sale process would allow the banks to demand a
higher price for the second half of their stake.
But Wollmuth Maher & Deutsch LLP's Paul R. DeFilippo, a
Lehman lawyer, said Friday that Zell's goal was to buy half of the
banks' stake and then use its new voting rights to eventually own
all of it "at Lehman's expense," something White later denied.
A Barclays lawyer, Herrington & Sutcliffe LLP's Joseph J.
Frank, shot down a key Lehman argument, saying Equity Residential
would never be able to acquire more than half of the banks' stake,
or 26.5% of Archstone.
"The only entity that can do that is Lehman," said Cleary
Gottlieb Steen & Hamilton LLP's Lawrence B. Friedman, an
attorney for Bank of America.
Under the terms of the deal, Equity Residential could buy only
26.5% of Archstone, but it could never end up with the banks'
entire 53% interest. Lehman, however, could buy the banks' entire
stake, in effect "doubling down" on its Archstone investment. The
banks' lawyers have said all along that Lehman is only upset that
the parameters of the deal could force it to pay more than Zell
would for the second half of the banks' stake.
Lehman led a $22 billion leveraged buyout with real-estate
investor Tishman Speyer for Archstone in 2007 near the height of
the real-estate bubble, with Bank of America and Barclays providing
financing. The two banks gained their ownership stakes after the
collapse of the commercial-real-estate market led to a
restructuring of the deal.
Lehman wants to sell shares in Archstone, which owns stakes in
more than 70,000 apartments, to the public. Proceeds of an initial
public offering would flow to the failed investment bank's
creditors.
(Dow Jones Daily Bankruptcy Review covers news about distressed
companies and those under bankruptcy protection.)
-By Joseph Checkler; Dow Jones Newswires; 212-416-2152;
joseph.checkler@dowjones.com
--Patrick Fitzgerald contributed to this article.
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