* Equity Residential given 60 more days to make offer
* Minimum bid price for stake raised to nearly $1.5 bln
By Ilaina Jonas
Feb 21 - Equity Residential, one of the
largest U.S. apartment owners, said it has been granted more
time to submit a bid for 26.5 percent of smaller rival
Archstone, albeit at a higher minimum price of nearly $1.5
Lehman Brothers Holdings Corp owns the remainder
of Archstone, a landlord of apartment buildings, many of
which are high-end towers in pricey urban locations.
Under an amended agreement with Bank of America Corp
and Barclays Plc, joint owners of 26.5 percent of
Archstone, Equity Residential will have until April 19 to make a
bid for the stake. The prior deadline was Feb. 19.
The agreement could give Equity Residential time to make a
bid for some or all of Archstone. And it could put pressure on
Lehman by significantly reducing the amount of time it has to
come up with a matching offer.
The revised agreement, reached on Feb. 17 and announced on
Tuesday, also raises the minimum bid for the stake to $1.485
billion from $1.325 billion.
Lehman, last month, raised its stake in Archstone
to 73.5 percent when it paid $1.325 billion for half of a 53
percent stake held by Bank of America and Barclays.
Equity Residential and its chairman, real estate mogul
Sam Zell, have been in pursuit of Archstone for months, making
no bones about their desire to own the company.
Equity Residential had first sought to buy half of the
53 percent of Archstone owned by the two banks but lost out last
month when Lehman matched its offer of $1.325 billion.
That triggered the second part of Equity Residential's
offer: a bid for the remaining 26.5 percent, at a price
equalling or exceeding the amount paid by Lehman for the first
If Equity Residential makes an offer, Lehman has the
right to match it. If Lehman does, the agreement requires the
banks to pay Equity Residential a $80 million break-up fee.
The extra 60 days could give Equity Residential leeway
to negotiate a deal directly with Lehman, UBS analysts said. But
it also puts pressure on Lehman, which is expected to exit
bankruptcy protection as early as this month.
While operating under bankruptcy protection, Lehman has
50 days to match an Equity Residential offer. Once out of
bankruptcy, it will have a significantly shorter time.
Lehman bought publicly traded Archstone-Smith in
a $22 billion leveraged buyout in 2007 with financing from
Barclays and Bank of America. The banks gained a big equity
stake in Archstone through two restructurings. Those
restructurings gave each of the partners veto power over major
decisions on Archstone and any sale of the company or its
assets. If Equity Residential buys the 26.5 percent stake, it
would inherit that veto power.
An Equity Residential veto could make it difficult
for Archstone to sell itself or its assets to others or sell
itself by becoming a publicly traded company again.
UBS analysts said they believe the extra time would give
Lehman time to negotiate a deal with Equity Residential to walk
away from Archstone in exchange for certain apartment buildings.
On the other hand, the higher price and extension open the
door for Equity Residential and Lehman to agree on a price for
all of Archstone's properties.
The revised agreement also contains provisions for the banks
to be compensated for the break-up fee should Equity Residential
acquire interest in Archstone or buy it later at a higher price.
A spokesman for Equity Residential declined to comment.
A representative from Lehman Brothers did not return phone
calls seeking comment.
Apartments have been the brightest sector within the
U.S. commercial real estate, with rents rising strongly.
Meanwhile new construction has remained at lowest levels in
nearly 20 years, according to Chandan Econometrics, which tracks
the impact the economy and financial markets have on real
In turn, investors have willingly accepted low yields
on their initial investments, as they pay higher and higher
prices for assets they believe will continue to generate
increasing revenue and profits.
As for Lehman, whose bankruptcy in 2008 set the
U.S. financial system into a downward spiral, Archstone is key
part of its plan to emerge from Chapter 11, which could happen
shortly. With its 73,555 apartments in the United States
and Europe, Archstone represents an important part of its plan
to raise $65 billion for the benefit of creditors.
Archstone is among Lehman's most valuable holdings.
Equity Residential has 121,974 apartments in 15 states and
Shares of Equity Residential closed down 1.7
percent at $57.54 Tuesday. The MSCI US REIT index
was off 1.5 percent.