NEW YORK, NY - Lehman Brothers Holdings Inc. announced that it has entered into a definitive agreement to sell full ownership of Archstone Enterprise LP (“Archstone”), its single largest asset, to Equity Residential and AvalonBay Communities, Inc. for cash and stock with an aggregate value of approximately $6.5 billion.
LBHI and its affiliates including Lehman Commercial Paper Inc. will receive $2.685 billion in cash as well as 34,468,085 shares of EQR common stock and 14,889,706 shares of AVB common stock which, on a combined basis and using last Friday’s closing prices, have a value of approximately $3.8 billion. As a result, LBHI and its affiliates will own 9.8% of EQR and 13.2% of AVB based on the shares of each issued as consideration. The purchasers have up to 120 days to close the transaction; the transaction is not subject to a vote of the shareholders of either EQR or AVB and does not have any financing contingencies.
This transaction follows Lehman’s purchase earlier this year of the remaining 53.6% stake in Archstone it did not own, which was made to protect the value of its investment in Archstone and enable Lehman to fully control the monetization alternatives for its investment. During the six months since the completion of the purchase transaction, Lehman has actively evaluated a broad range of monetization alternatives for the company, including filing in August for an initial public offering.
The $6.5 billion transaction price represents a significant return on Lehman’s purchase (for an implied value of $5.55 billion) of the remaining 53.6% interest it did not own. Further, the $2.7 billion cash component of the sale consideration substantially returns the $3.0 billion investment made by Lehman in the purchase transaction.
“The sale of Archstone to Equity Residential and AvalonBay is a very positive outcome for our creditors,” said Owen Thomas, Chairman of Lehman’s Board of Directors. “The transaction delivers significant return on the investment we made earlier this year to fully control Archstone and has generated immediate and considerable proceeds for our next distribution to creditors. Further, we believe our shareholdings in EQR and AVB, both industry leading companies with significant market capitalization and trading below their respective consensus net asset values, provide us with the potential for further appreciation and substantial liquidity for our remaining investment.”
Jeff Fitts, Lehman’s head of real estate, and Doug Sesler, advisor to Lehman for Archstone, added, “The unwavering focus of Archstone’s management, led by Scot Sellers, on driving excellent performance has been a key factor in the value creation that we have been able to achieve. We are very appreciative of the professionalism the entire Archstone team has exhibited throughout the term of Lehman’s ownership.”