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Barclays Opposes Lehman Bid to ‘Rewrite’ Archstone Deal

Barclays Plc, which with Bank of America Corp. holds 53 percent of Lehman Brothers Holdings Inc.’s biggest real-estate asset, Archstone, criticized Lehman’s challenge of an option the banks gave to Equity Residential to buy half of their stake at a still undetermined price.

Lehman hasn’t shown the banks’ contract with the Sam Zell’s company caused it “irreparable harm” and is seeking to “avoid paying a market price for complete control of Archstone,” Barclays said in a court filing today.

“Plaintiffs attempt to use this court to rewrite the parties’ contracts,” Barclays said in the filing in U.S. Bankruptcy Court in Manhattan. “Plaintiffs don’t want the market to decide the price for defendants’ final 26.5 percent stake in Archstone.”

Lehman, which is trying to gain control of Chicago-based Archstone, plans to pay about $1.3 billion for the first 26.5 percent piece of Archstone held by the banks. Equity Residential had offered to buy the stake and retains an option on the banks’ remaining 26.5 percent stake, for which it would set a price.

‘Missing Fact’

Bankrupt Lehman said in court papers last week that the Zell company, Archstone’s biggest rival in the apartment business, would be a “contentious” partner in Archstone and impair the company’s value. The “missing fact” in Lehman’s filings is that the former investment bank “expressly approved” Equity Residential as an eligible investor in Archstone in 2009, according to London-based Barclays.

“Plaintiffs expressly agreed that EQR could come off the ‘do not sell’ list and expressly agreed that any Archstone owner could sell to EQR,” it said.

Kimberly Macleod, a Lehman spokeswoman, declined to comment on today’s filing.

A judge is due to hold hearings on the dispute later this week.

Separately, Charlotte, North Carolina-based Bank of America filed its opposition to Lehman’s effort to intervene in the deal with Zell, saying the banks would be harmed by any delay.

Lehman aims to sell or liquidate Archstone for $6 billion to help pay creditors with claims of about $370 billion, and to do that must gain control of the company, according to a person familiar with the plan. Zell, with a 26.5 percent stake, could thwart all of Lehman’s plans for Archstone, Jeffrey Fitts, Lehman’s co-head of real estate, said in a filing.

Growth Decisions

Equity Residential could “single-handedly drive down the value of Archstone and hinder the debtors’ ability to exit their investment in Archstone,” he said. It would even have “power to veto major financing and external growth decisions, formation and approval of budgets.”

Equity Residential told the judge last week it urgently needed to intervene in the court proceedings over Archstone to protect its rights in the deal, including a so-called breakup fee if Lehman buys the banks’ whole 53 percent stake. It also filed papers today.

Lehman, which is trying to carry out a $65 billion liquidation plan to pay creditors, expects to get back within 12 months and distribute to creditors “whatever estate funds are used” to pay the banks for their Archstone stake, Fitts said. Lehman will use equity partnerships, asset sales, joint ventures and other means to “repatriate” the money, he said.

Secured Loans

Archstone, which Lehman acquired in a $22 billion leveraged buyout with Tishman Speyer Properties LP, has ownership interests in hundreds of apartment developments from Washington and New York to San Francisco. Lehman, Bank of America, Barclays and other lenders assumed or provided secured loans, according to court papers.

The main case is In re Lehman Brothers Holdings Inc., 08-13555, U.S. Bankruptcy Court, Southern District of New York (Manhattan). Lehman’s lawsuit is Archstone LB Syndication Partner LLC v. Banc of America Strategic Venture Inc. (In re Lehman Brothers Holdings Inc.), 11-02928, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

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