CommonWealth REIT (CWH)’s sale of 30 million shares at $19 apiece may proceed to completion over the objection of investors led by activist Keith Meister and the Related Cos., a judge ruled.
U.S. District Judge Denise Casper in Boston denied a plea by the investors, as well as the Delaware County Employees Retirement Fund, for a restraining order blocking the equity offering from closing. Meister’s Corvex Management LP and Related said at a hearing yesterday that they would have bought the shares at the $19 offering price.
“The equity offering is being pursued by the company to defeat efforts by existing shareholders to effect change at the company,” Corvex and Related said in their March 1 complaint.
CommonWealth owns downtown and suburban office buildings and industrial properties in U.S. cities including Chicago, Denver and Philadelphia. Corvex and Related, which together own 9.8 percent of the Newton, Massachusetts-based real estate investment trust, had an offer to acquire CommonWealth for $27 a share before the pricing of the stock offer.
Corvex and Related projected that CommonWealth’s real estate assets are worth about $40 a share, according to a Feb. 26 regulatory filing, and asserted that poor management has driven down the value of the stock.
‘Out of Control’
“Management is out of control and they are circling the wagons against their shareholders,” Nicholas Chimicles, a lawyer for the Delaware retirement fund, told the judge at the hearing. “They’re putting 30 percent of the company in the hands of new stockholders we believe have been cherry-picked.”
CommonWealth lawyer Robert Saunders said there was no evidence of selective selling of the new shares and warned of negative consequences if the sale was stopped. He also said many buyers of the shares have sold them to others.
“If your honor were to restrain the first settlement of the shares, that will have an enormous cascading effect of failed trades,” Saunders told the judge. “The eggs are already scrambled, your honor.”
The Delaware fund sued CommonWealth founder Barry Portnoy and members of its board of trustees over the planned sale.
The trustees are using CommonWealth’s equity “to entrench themselves and discourage any proposal to acquire” CommonWealth shares, the fund said in court papers.
A CommonWealth spokesman couldn’t be reached for comment about the lawsuits. Lawyers for the trustees said in court papers that CommonWealth was raising equity and cutting debt to maintain an investment-grade credit rating.
Corvex and Related alleged that CommonWealth’s trustees disseminated false and misleading statements and defrauded the landlord’s investors.
Bylaw amendments proposed by CommonWealth “are an act of desperation and an indication that CWH’s board is truly terrified at the prospects of facing its shareholders,” Meister, and Jeff T. Blau of Related, said in a statement.
Luxor Capital Group LP, the owner of an 8 percent stake in CommonWealth, on March 1 asked the company’s board to form an independent committee to explore “strategic alternatives.”
“We find it unconscionable that the board of trustees would vote to issue shares significantly below market in light of the offer on the table from a credible buyer at a significant premium,” Luxor, a New York-based investment manager, said in a letter to the board.
The case is Corvex Management LP v. CommonWealth REIT, 13-cv-10475, U.S. District Court, District of Massachusetts (Boston). The previous case is Delaware County Employees Retirement Fund v. Portnoy, 13-cv-10405, U.S. District Court, District of Massachusetts (Boston).
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