NEW YORK — Lehman Brothers Holdings lost a bid to block Bank of America and Barclays from giving Sam Zell’s Equity Residential an option to buy 26.5 percent of Arapahoe County-based Archstone when a judge said Zell was entitled to the option.
Bankrupt Lehman tried to block the deal, saying it would be forced to pay more than the $2.6 billion it planned for the banks’ 53 percent stake in Archstone. Lehman may be insolvent, yet it is “cash-rich,” U.S. Bankruptcy Judge James Peck said in a court hearing Friday. Lehman and its affiliates had $27.2 billion of cash and investments on Nov. 30, according to filings.
Peck said he assumed the Zell company would bid about $1.4 billion for half of the banks’ stake because if Lehman matches his offer, Equity Residential would get a so-called breakup fee in compensation.
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.”
However, he said, the Zell company is entitled to exercise its option.
Peck said he agreed with the banks, which argued that the fight over Archstone “is simply about money.”
Lehman wouldn’t be immediately harmed if the deal went forward, he said.
Peck said he sided with the Zell company, which argued it would be harmed if Lehman blocked the deal, because it had spent time and money on the investment and would end up with nothing.
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’ stake. Zell’s Chicago-based 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 currently owns 47 percent.
