Zell Lifts Bid for Banks’ Stake in Archstone to $1.5 Billion

Sam Zell’s Equity Residential raised its bid for a stake in Archstone held by Bank of America Corp. and Barclays Plc to almost $1.5 billion after Lehman Brothers Holdings Inc. said it wanted to take control of the real-estate company.

The banks extended Zell’s deadline for exercising his option to buy their remaining 26.5 percent of Archstone until April 19, Chicago-based Equity Residential said in a statement today. Lehman, which has agreed to pay $1.3 billion for the banks’ other 26.5 percent of the apartment company, tried unsuccessfully to block the Zell deal, saying it would be forced to pay more than the $2.6 billion it planned for the banks’ 53 percent stake in Archstone.

Equity Residential will get an $80 million breakup fee if Lehman matches Zell’s price for the Archstone stake, Equity Residential said. Zell previously said he valued the stake at $1.3 billion or more.

Ruling that Zell was entitled to the option, U.S. Bankruptcy Judge James Peck said in a court hearing last month that he assumed the Zell company would bid about $1.4 billion for half of the banks’ stake, because at that price Equity Residential would get a breakup fee in compensation for its work preparing a bid for Archstone.

Kimberly Macleod, a Lehman spokeswoman, declined to comment on the Zell bid.

‘Disguised Sale’

The banks’ deal with Zell is really “a disguised sale of 100 percent of the banks’ stake to Lehman,” designed to get a good price, Peck said. “I know it.”

Still, he said, the Zell company is entitled to exercise its option, denying Lehman’s request for a preliminary injunction.

Lehman, which has said it wants to sell Archstone for $6 billion to help pay creditors, is first seeking to gain control by buying the banks’ stakes. Zell’s company is Archstone’s biggest rival in the apartment business, referred to by Peck as “the elephant in the room.”

Archstone is Lehman’s biggest real estate asset. Lehman owned 47 percent before agreeing to buy another 26.5 percent.

Liquidation Plan

Lehman is embarking on a $65 billion liquidation plan after three years in bankruptcy court, which would pay the average creditor less than 18 cents on the dollar in the next few years.

Lehman sued the banks on Dec. 15 for breach of contract, saying they colluded to sell a stake to Zell’s company, Archstone’s “largest competitor.” Equity Residential, with a minority stake, could use its leverage to gain all of Archstone so Lehman would have to defend itself by buying the stake Zell bid for, Lehman’s lawyer, Paul DeFilippo, told the judge last month.

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 and the banks made loans, which they later converted to equity after Archstone faltered in the 2008 credit crisis.

The case is In re Lehman Brothers Holdings Inc., 08-13555, U.S. Bankruptcy Court, Southern District of New York (Manhattan). The complaint 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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