Archstone is a private company which owns, operates and develops multifamily apartment properties. It was owned by a consortium of financial institutions including Bank of America, Barclays, and the bankruptcy estate of Lehman Brothers Holdings Inc. While Bank of America and Barclays collectively held a 53 percent stake in the company, the remaining 47 percent was held by Lehman.
Last year, Equity Residential struck a deal with Bank of America and Barclays to acquire half of their combined ownership interests. However, Lehman had the “right of first offer,” under which the banks were obliged to present the stake with any offer acceptable to them and offer Equity Residential a chance to either match or beat it. Subsequently, as Lehman exercised this right and acquired this 26.5 percent interest, Equity Residential’s contract with the banks was terminated.
Presently, Equity Residential exercised its previously assigned, exclusive right to purchase the remaining 26.5 percent banks’ interests in Archstone. However, Lehman has also exercised its right of first offer and executed a binding purchase agreement with the two banks to acquire the Archstone interest for the same purchase bid. This transaction is expected to close within approximately 15 days. Both the parties have released each other from all claims regarding Archstone.
As per the agreement, if Lehman now acquires the interest, Equity Residential will be entitled for a break-up fee of up to $80 million from both the banks and a termination fee of $70 million from Lehman. On the contrary, if Lehman chooses not acquire the interest, Equity Residential’s agreement with the banks will remain intact.
In case, after the final acquisition of Lehman, if Equity Residential acquires all the stakes of Archstone within 120 days, under certain circumstances it will likely have to payback all or a portion of $150 million received on the account of termination and break-up fees. Presently, Equity Residential has not negotiated with Lehman regarding the buyout of all outstanding interest in Archstone. But they may exercise the activity as the agreement does not prevent the company from exercising such type of negotiations in the future.
Based in Chicago, Illinois, Equity Residential engages in the acquisition, development, and management of high quality apartment properties in top U.S. growth markets. Equity Residential owns or has investments in 427 properties located in 14 states and the District of Columbia, consisting of 121,011 apartment units.
Author: Zacks Equity Research