The estate of Lehman Brothers Holdings has purchased the remaining shares of Archstone from Bank of America and Barclays for $1.58 billion. The move not only brings the long and brutal battle between Lehman and Equity Residential to a conclusion, it also makes Lehman the sole owner of the Denver-based apartment REIT.
According to two releases issued today, as a consolation prize, Equity Residential will receive $150 million in breakup fees: the sellers will pay Equity Residential a breakup fee of $80 million and Lehman will pay the Chicago-based REIT a termination fee of $70 million.
“With full ownership of Archstone, we will now be able to move forward and pursue monetisation opportunities for the company,” said Owen Thomas, chairman of Lehman's board of directors, in a statement.
Jeff Fitts, Lehman's head of real estate, added: “We are very pleased to be purchasing the remaining 26.5 percent stake in the company, whose value had been impaired by the previous partnership structure.”
After Lehman shut out Equity Residential's initial bid for a 26.5 percent stake in Archstone in January, Equity Residential reached an agreement with Bank of America and Barclays to extend its deadline for its exclusive right to acquire the remaining interest in Archstone to late May. As part of the extension agreement, the minimum price at which the sellers were obligated to sell this interest in Archstone to Equity Residential was increased to $1.5 billion from $1.33 billion. Since Equity Residential did not make the bid, Lehman exercised its right of first offer and made a binding agreement with the co-owners of Archstone to buy the remaining shares.
The battle between Equity Residential and Lehman over ownership of Archstone follows the failure of Lehman, Bank of America and Barclays to agree over what to do with the troubled REIT. In June 2011, the three firms could not decide whether to sell their stakes via an IPO, sell the company outright or to infuse some fresh capital into the platform. Following this communication breakdown, Bank of America and Barclays chose to sell their shares to the highest bidder.
“Lehman's decision to acquire the remaining stake in Archstone provides ownership support and organisational stability,” added Scot Sellers, chief executive officer of Archstone.