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(Reuters) - A bankruptcy judge has denied a request by Lehman Brothers Holdings Inc to block billionaire Sam Zell from acquiring part of apartment company Archstone.
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Lehman, which owns 47 percent of Archstone, had sued Bank of America Corp and Barclays Plc , which own the other 53 percent, for trying to sell half of their stake to Zell's Equity Residential .
Lehman argued it would suffer "irreparable harm" if forced to partner with Equity Residential, a key rival. Archstone is one of the most valuable assets Lehman is trying to liquidate so that it can repay creditors and exit bankruptcy.
But Judge James Peck of U.S. Bankruptcy Court in Manhattan denied Lehman's request, saying Equity Residential has the right to go ahead.
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"The balance of harms ... together with the lack of irreparable harm (to Lehman), makes this a ruling I am comfortable making today," Peck said in court on Friday.
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Lehman will still likely exercise its right to match Zell's $1.325 billion offer for Archstone, which will trigger Zell's right to make an offer for the second half of the banks' stake.
Lehman had argued that it should have the first bite at the second half of that stake, allowing it to offer the same $1.325 billion price considered to be below-market.
Instead, Lehman will have to outbid Zell, who could raise the price for the second stake to nearly $1.45 billion, according to testimony on Thursday from Lehman real estate head Jeffrey Fitts. Lehman would have to overcome not only the price increase but also a hefty break-up fee built into the deal.
"I have to assume that as a public company, (Equity Residential) is going to exercise the option if the world doesn't come to a crashing halt" for nearly $1.45 billion, Peck said.
The judge did not rule on the issue of damages, potentially opening the door for Lehman to argue later that the deal was structured to hurt its bottom line and should be entitled to damages.
A Lehman spokeswoman declined to comment. Representatives for Equity Residential and Archstone could not immediately be reached.
REAL ESTATE SAGA
The Archstone saga could play a role in determining the recoveries Lehman's creditors receive after bankruptcy. Lehman filed for bankruptcy on September 15, 2008, contributing to the global financial meltdown.
The company hopes to officially emerge from Chapter 11 protection and begin paying back creditors within the next few months. Its $65 billion payback plan involves liquidating assets for the benefit of creditors.
