8-KMaterial AgreementsOther Events

EQUITY RESIDENTIAL 8-K Report, Agreement Terminated (Jan 23, 2012)

Filed January 23, 2012For Securities:EQR

Summary

Equity Residential (EQR), through its operating partnership ERP Operating Limited Partnership, has reported a material development regarding its potential acquisition of a 50% interest in various Archstone Entities. The initial purchase agreement, valued at $1.325 billion, was terminated because Lehman Brothers Holdings Inc. exercised its right of first offer (ROFO) to acquire these interests. This means EQR will not be acquiring the initially agreed-upon portion of Archstone at this time. Despite this termination, EQR retains a right, exercisable between January 20, 2012, and February 19, 2012, to acquire the sellers' remaining interests in the Archstone Entities. This potential acquisition would be for a cash consideration of at least $1.325 billion, determined at EQR's discretion, and would also be subject to Lehman's ROFO. The report clarifies that EQR is not obligated to pursue this remaining interest, but it represents a potential, albeit now more complex, avenue for involvement with Archstone.

Key Highlights

  • 1Equity Residential's planned $1.325 billion acquisition of a 50% interest in Archstone Entities has been terminated.
  • 2Lehman Brothers Holdings Inc. exercised its right of first offer (ROFO) to purchase the 50% interest in Archstone Entities from the sellers.
  • 3The termination of the initial purchase agreement occurred on January 20, 2012, immediately following Lehman's acquisition.
  • 4Equity Residential retains a right to purchase the sellers' remaining interests in the Archstone Entities between January 20, 2012, and February 19, 2012.
  • 5This potential acquisition of remaining interests is for a cash consideration of at least $1.325 billion, determined at EQR's discretion.
  • 6Any potential acquisition of the remaining interests is also subject to Lehman's ROFO.
  • 7The filing also notes past and potential future business relationships between EQR's affiliates and the sellers' affiliates, including customary fees and credit facility arrangements.

Frequently Asked Questions

The original purchase agreement for Equity Residential (through ERP Operating Limited Partnership) to acquire a 50% interest in various Archstone Entities for $1.325 billion was terminated. This occurred because Lehman Brothers Holdings Inc. exercised its right of first offer to acquire those specific interests.

Yes, Equity Residential has a limited window, from January 20, 2012, to February 19, 2012, to exercise its right to acquire the sellers' remaining interests in the Archstone Entities. This is a separate right from the terminated agreement and the price would be determined by Equity Residential, but would be at least $1.325 billion. This potential acquisition is also subject to Lehman's right of first offer.

The filing does not provide the specific reasons why Lehman Brothers exercised its right of first offer. It only states that Lehman delivered a binding notice, entered into a purchase agreement, and closed on the acquisition of the 50% Purchased Interests, which consequently led to the termination of Equity Residential's initial agreement.

The primary financial impact is that Equity Residential did not proceed with the $1.325 billion acquisition of the 50% interest in Archstone. The company is not obligated to pursue the remaining interests. The filing indicates that certain affiliates of the sellers have provided services and may continue to do so, receiving customary fees, and are also involved in ERP's credit facilities. The immediate financial outlay related to the terminated agreement is not specified but is implied to be avoided.