A mini-trial began in US Bankruptcy Court in New York today on Lehman Brothers Holdings' request to block Equity Residential’s proposed purchase of a minority ownership stake in US apartment giant Archstone. The mini-trial is the latest twist in an increasingly convoluted battle over the ownership of the Denver-based multifamily REIT.
In December, Equity Residential agreed to purchase a 26.5 percent stake in Archstone for $1.33 billion, representing half of Barclays and Bank of America’s shares. Shortly thereafter, Lehman, which currently owns 47 percent of Archstone, filed suit against Barclays and Bank of America for selling the shares to the Sam Zell-led REIT, citing breach of contract.
In documents filed with US Bankruptcy Court, Lehman’s attorneys said the former banking giant has a contractual right of first offer and should be allowed to block Equity Residential from buying the banks’ stakes. Lehman’s documents also stated that the sale of the shares to Equity Residential would create a “contentious partnership” that would “inevitably impair the value of Archstone.”
In anticipation of the injunction hearing, Equity Residential filed a motion with the court on 29 December to intervene as a “party in interest” in the legal proceedings. “Equity Residential does not believe that the company’s intervention in the case will create any delays in the ongoing proceedings,” the Chicago-based REIT argued.
In addition, according to various media reports, Barclays’ lawyers also filed documents with the court on Tuesday, criticising Lehman’s injunction. The documents primary claim: “Plaintiffs attempt to use this court to rewrite the parties’ contracts…and don’t want the market to decide the price for defendants’ stake in Archstone.” The filing added that, in 2009, Lehman had “expressly agreed” that Equity Residential “could come off the 'do-not-sell list',” therefore any Archstone owner could sell to Equity Residential.
The mini-trial, presided over by US Bankruptcy Judge James Peck, could continue through to Friday. Judge Peck also presided over Lehman’s recapitalisation hearing in December, where he approved of the former Wall Street banking giant’s plan to exit Chapter 11 bankruptcy protection.
Barclays and Bank of America, which together own a combined 53 percent stake in Archstone, have been wanting to sell off their shares in the multifamily landlord since failing to come to an agreement with co-owner Lehman over how to proceed with the troubled platform. Archstone is the largest remaining real estate asset on Lehman’s books.