CommonWealth Prices New Shares Amid Investor Objections, Lawsuit

CommonWealth REIT (CWH) priced 30 million shares for $19 each amid objections from investors Keith Meister and Related Cos., who sued to stop the sale and proposed to buy the company for $27 a share.

The offering settlement is scheduled for March 5, the company said in a statement, several hours after Meister and Related raised a contingent offer to acquire the real estate investment trust from $25 a share. The two investors together own 9.8 percent of the Newton, Massachusetts-based company.

Meister’s Corvex Management LP and Related, led by Chief Executive Officer Jeff Blau, project that CommonWealth’s real estate assets are worth about $40 a share, according to a regulatory filing yesterday, and assert that poor management has driven down the value of the stock. With better management, the two investors expect CommonWealth could hit a target share price of more than $50, the filing shows.

Meister and Related sued the company and claimed breach of fiduciary duty, seeking to stop CommonWealth’s plan to issue the new stock and use $450 million in proceeds to pay off debt. The $27-a-share offer was contingent upon suspension of the stock offering and meeting with the two investors within 48 hours, they said in a statement.

Joanna Rose, a spokeswoman for Related and Corvex, declined to comment in an e-mail. Tim Bonang, director of investor relations at CommonWealth, didn’t immediately return a call seeking comment.

‘Best Interests’

The real estate investment trust said today in a statement before the share sale that “the best interests of CommonWealth will be served by CommonWealth continuing the common share offering and debt tender offer previously announced.”

Meister and Related have said their tender offer for the company could be reduced if CommonWealth proceeded with the share offering.

Issuing the additional shares will dilute CommonWealth’s outstanding stock, lowering the dividends paid to shareholders.

REITs, whose primary income streams are from real estate, are required by the Internal Revenue Service to distribute at least 90 percent of their taxable earnings to shareholders in the form of dividends. In exchange they pay little or no income tax.

Shares of CommonWealth jumped 54 percent yesterday, the most since at least 1986, after Corvex and Related challenged the offering. The stock today fell almost 8 percent to $22.51 at the close in New York.

Corvex and Related also said in the filing they may try to replace members of the board, including CommonWealth President Adam Portnoy and his father, Chairman Barry Portnoy, if the REIT proceeded with the share sale.

CommonWealth owns downtown and suburban office buildings and industrial properties in U.S. cities including Chicago, Denver and Philadelphia.

The case is Corvex v. CommonWealth REIT, Circuit Court for Baltimore City (Maryland).

To contact the reporters on this story: Brian Louis in Chicago at blouis1@bloomberg.net; Oshrat Carmiel in New York at ocarmiel1@bloomberg.net; David Welch in New York at dwelch12@bloomberg.net

To contact the editor responsible for this story: Kara Wetzel at kwetzel@bloomberg.net

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