Lehman Says Banks 'Conspired' To Offer Archstone Stake To Zell

Date : 03/07/2012 @ 1:16PM
Source : Dow Jones News

Lehman Says Banks 'Conspired' To Offer Archstone Stake To Zell

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   By Joseph Checkler 

Lehman Brothers Holdings Inc. (LEHMQ) says its Archstone apartment company co-owners Barclays PLC (BCS) and Bank of America Corp. (BAC) "conspired" to try to sell their once-53% stake in Archstone to competitor Sam Zell, the latest accusation in a fight that's really about how much Lehman will be forced to pay when it exercises its right to buy all of Archstone.

In a Monday filing with U.S. Bankruptcy Court in Manhattan, Lehman said the two banks breached the Archstone contract in several ways, including by not notifying Lehman of the proposed $1.33 billion sale of half their Archstone stake to Zell's Equity Residential, Archstone's top competitor.

"Since the summer of 2011, the Banks have been attempting to sell their interests in Archstone, and in the process have committed numerous material breaches of the Archstone Agreements," Lehman's lawyers said in the filing. Lehman wants the banks stripped of their voting and governance rights in Archstone and wants them forced to at least refund Lehman for any amount over $1.33 billion it might have to pay for the second half of the stake.

Lawyers for Barclays and Bank of America didn't immediately respond to requests for comment.

The fight is a continuation of one that resulted in a two-day trial in January, with a judge ultimately allowing Lehman to exercise a right of first offer provision to buy half of the banks' then-53% stake in Archstone for $1.33 billion, the amount Zell tried to pay Barclays and Bank of America for the same stake.

Lehman now owns 73.5% of Archstone and wants the banks' other 26.5% for the same $1.33 billion price. Lehman is suing the banks for breach of contract, saying they violated agreements made after the collapse of the commercial-real-estate market led to them gaining their Archstone stakes.

At the January bankruptcy-court trial, lawyers for Zell and the banks argued that Lehman's legal strategy was to attempt to fend off Equity Residential from trying to bid on the second half of the banks' stake, which would prevent a bidding war between the two sides. While Lehman has the right to buy the stake, Equity Residential could essentially bid up its biggest rival. The banks want the eventual winning bidder, most likely Lehman, to pay a higher "market" price.

In 2007, Lehman led a $22 billion leveraged buyout with real-estate investor Tishman Speyer for Archstone, with Bank of America and Barclays providing financing. The later restructuring led to the banks' gaining their stakes.

Judge James Peck of U.S. Bankruptcy Court in Manhattan signed off on Lehman's $65 billion creditor payback plan late last year. On Tuesday, Lehman said the plan is now effective, and that creditors will get their first distribution April 17.

Despite the confirmation of the plan, the company still has billions of dollars in real estate and other assets and will continue to exist as it unloads and manages those investments.

(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

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