New York—Late last week, Judge James M. Peck of the U.S. bankruptcy court in Manhattan dealt a blow to the effort by Lehman Brothers Holdings Inc. to prevent Barclays and Bank of America from giving Equity Residential Properties an option to buy 26.5 percent of multifamily landlord Archstone, which owns about 74,000 apartment units nationwide and in Germany. Lehman had asked the judge to issue a preliminary injunction against the offering, but the judge said no, though he did leave open the possibility that Lehman could seek damages from the banks.
Assuming that there are no further obstacles, Equity Residential, which is controlled by Sam Zell, will now be able to bid for Archstone. It’s thought that the bid will be about $1.4 billion, a figure cited by Judge Peck. Lehman would have to top that bid to acquire the 26.5 percent in Archstone, and in that case Equity Residential would receive a breakup fee.
The sale of the first half of the bank’s holdings to Lehman would trigger another option for Zell to buy the second half of the banks’ holdings—another 26.5 percent share. Lehman would have to match that offer as well, along with paying another breakup fee, to gain full control of Archstone.
Lehman asserted that the banks’ plan all along in offering pieces of Archstone to Zell was to drive up the price that Lehman would have to pay for the shares. Peck essentially agreed with that assessment, but found it irrelevant, concluding that the banks were within their rights to offer Equity Residential the options to buy Archstone.
The ruling is the latest development in the tortured history of the unwinding of Lehman Brothers. It’s been more than three years since the Lehman Brothers bankruptcy panicked world markets and precipitated the Great Recession. The bankruptcy left Barclays and Bank of America in possession of 53 percent of Archstone, which is widely considered Lehman’s most valuable asset.
Lehman has let it be known that it wants to own the entire company so that it might raise cash through an IPO to pay its (Lehman’s) creditors. Barclays and Bank of America, on the other hand, seemed more inclined to sell Archstone to raise money. Equity Residential’s presumed bid would value Archstone at $16 billion; back in the heady days of 2007, Lehman bought Archstone for $22 billion.