Equity Residential Extends Archstone Purchase Option
February 21 2012 - 12:22PM
Dow Jones News
Apartment company Equity Residential (EQR) struck a deal with
Bank of America Corp. (BAC) and Barclays PLC (BCS, BARC.LN) over
the weekend to extend its purchase option to buy a stake in
competitor Archstone by 60 days, according to a press release
Monday and people familiar with the terms of the deal.
In return, Equity Residential, controlled by Chicago real estate
investor Sam Zell, has agreed to raise its minimum price from $1.44
billion to $1.485 billion for 26.5% of Archstone.
The remainder of Archstone is owned by the bankruptcy estate of
failed investment bank Lehman Brothers Holdings Inc.
The move is the latest twist in a complicated sale process for
Archstone, which was taken private in a $22 billion leveraged
buyout by a Lehman-led team at the height of the market in 2007.
That deal is widely viewed as one of the largest of the $40 billion
in risky commercial real estate bets that were in large part
responsible for Lehman's bankruptcy in 2008.
For the last year, Lehman has been arguing with Barclays and
Bank of America over how to best unwind the Archstone investment,
which is Lehman's largest single remaining asset. Lehman would
prefer to take the company public again in an initial public
offering process, while the banks have signaled that they would
rather sell the company quickly in a private transaction.
Last summer, the banks held a 53% stake in Archstone, and began
looking for a buyer, with Equity Residential emerging as the lead
bidder late last year.
Under the terms of Archstone's ownership agreement, the banks
were required to offer Lehman the right to match any offer made to
buy all or part of the company.
Last month, Lehman blocked Archstone's bid to buy the first half
of the banks' 53% stake by paying $1.33 billion cash. If Lehman
decides to match Equity Residential's offer for the second piece
owned by the banks, Zell's company is entitled to an $80 million
break-up fee.
In a Monday research note to investors, J.P. Morgan analyst
Anthony Paolone wrote that the increased minimum price reduces the
capitalization rate -- or investment yield -- on Equity
Residential's potential investment in Archstone from 5.3% to 5.02%,
and values the company at $16.6 billion, including debt.
-By Robbie Whelan, Dow Jones Newswires; 212-416-2905;
robbie.whelan@wsj.com
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