Chicago-based Equity Residential has been given an extension until April 19 to bid on the second part of Bank of America Corp. and Barclays' stake in Denver-based Archstone. To get the extension from the two banks, EQR had to agree to a minimum bid of $1.485 billion, up from its previous minimum bid of $1.325 billion.
Under the terms of the original agreement, EQR needed to bid for the second tranche, which is 26.5 percent of Archstone, by a Feb. 19 deadline, which passed over the weekend. When the deadline passed without an announcement, there was some initial surprise.
“While we were surprised to not see any EQR release over the holiday weekend, following the Feb. 19 expiration of the option to bid on the second Archstone tranche, we are not shocked that EQR has shrewdly extended the time line to keep its options alive,” says New York–based investment banking firm Sandler O’Neill + Partners.
In fact, in an earlier report, Sandler speculated that EQR would need to bid higher than $1.44 billion to get a shot at a quarter of Archstone, which owns 72,996 units and placed 13th on last year’s Multifamily Executive Top 50 Owners list. Sandler believes that if EQR, which has 121,974 units and placed fifth in last year’s Top 50, got the 26.5 percent stake, which would give it veto power over major Archstone decisions, it could use the power to "carve out some assets in exchange [for concessions], or potentially try to win control over the whole (remote in our view).”
One analyst told MFE that EQR could push back the deadline because the firm is negotiating a side deal with Lehman. In a Reuters article today , the wire cited UBS analysts who believe the extra time gives Lehman a window to negotiate a deal that would convince EQR to give up its bid in exchange for apartment buildings. But the higher price and extension also give EQR and Lehman time to agree on a price for all of Archstone.
Others just think that with the kinds of dollars involved in this sort of a deal, more time can only help.
“We're talking about billions of dollars,” says one observer. “You might as well take your time to make sure you're doing it right. They were likely going to bid higher anyway, for a variety of reasons. But among them is it would lead to a nice breakup fee if they got matched again by Lehman.”
If Lehman successfully executes its right of first offer, EQR receives a reported breakup fee of $80 million. “Given that EQR's driving objective is to get at Archstone, rather than simply collect a lucrative break fee, we believe EQR will continue to maximize its options while keeping its deal alive that gives it an option to buy the banks' remaining stake,” Reuters said in today’s report.
The jockeying for financial control doesn’t seem to be affecting Archstone’s aggressiveness in adding new properties. Today, the firm announced that an Archstone-sponsored partnership acquired a 131-unit property in Kirkland, Wash. In January, the company broke ground on another 388 units in Phoenix with locally based apartment developer Mark-Taylor.