Corvex Management LP and Related Cos., the second-biggest shareholders of CommonWealth REIT (CWH), sent a letter to investors lobbying them to remove the board after the landlord spurned the companies’ buyout offer.
Jim Lozier, a co-founder and former chief executive officer of Goldman Sachs Group Inc.’s Archon Group LP, agreed to be the real estate investment trust’s interim CEO if the removal effort succeeds, New York-based Corvex and Related said in the letter. They are seeking the board changes through a consent solicitation, a proxy proposal that doesn’t require a shareholder meeting. CommonWealth’s trustees sent their own letter to investors in response today, saying the activists aren’t entitled to seek the consents and urging no action.
Corvex and Related, whose $2.9 billion takeover offer was rejected by CommonWealth this week, said the REIT’s trustees and management “are solely beholden” to the company’s president, Adam Portnoy, and his father, Barry Portnoy, a CommonWealth founder. The Portnoys also own Reit Management & Research LLC, or RMR, the external management company for Newton, Massachusetts-based CommonWealth and four other REITs.
“CommonWealth’s real estate assets trade at a substantial discount to fair value due to a misalignment of incentives between RMR and shareholders, and what in our view is plain mismanagement by the Portnoys and the trustees,” according to the letter, signed by Corvex founder Keith Meister and Related CEO Jeff Blau. “Given the accelerating pace of CommonWealth’s value-destroying activities, we are left with no alternative but to seek to immediately remove this board.”
The investors’ $24.50-a-share bid was conditional and didn’t include a financing plan, CommonWealth said on April 15. The REIT, incorporated in Maryland, also said it adopted provisions of the state’s Unsolicited Takeovers Act, which it believes means board members “may only be removed ‘for cause,’ and that no such cause exists.”
Corvex and Related hired Deutsche Bank AG as its adviser and expects to work with the lender on any required financing, according to today’s letter. Lozier would serve as interim CEO until a new board is appointed. CBRE Group Inc. has agreed to provide interim property management and leasing to CommonWealth’s portfolio, which are currently done by RMR, Corvex and Related said.
The investors hold 9.2 percent of CommonWealth’s stock, making them the largest shareholders behind Vanguard Group Inc., which owns 9.5 percent, according to data compiled by Bloomberg.
CommonWealth said today that Corvex and Related’s record date, which determines who is eligible to vote, isn’t valid under its bylaws, and no court or arbitration panel has ruled that the investors are eligible to seek consent.
“Corvex/Related’s attempted consent solicitation is part of an effort to seize control of your company for their own benefit or, alternatively, to realize a quick profit by forcing a sale of CommonWealth before the full benefits of CommonWealth’s current business plan are realized,” the REIT said in the letter, released after the close of trading.
The investors are ineligible to try and remove the board because they haven’t owned at least 3 percent of CommonWealth shares for three years, the REIT said in a separate statement earlier today. CommonWealth made that a rule under its bylaws on March 1, after the clash between the company and the investors became public.
The investors sued CommonWealth on Feb. 27 in Maryland state court alleging in part breaches of fiduciary duty, corporate waste and breach of contract, according to an April 1 regulatory filing by CommonWealth. A hearing in Maryland on whether the disputes between the investors and CommonWealth should be sent to arbitration is scheduled for May 3, according to an April 15 statement from the company.
Rather than pursue a sale, CommonWealth plans to stick to its strategy of concentrating on urban office properties, selling non-core assets and cutting debt, the company said in its April 15 statement. The REIT owned $7.3 billion of office and industrial properties as of Dec. 31, with about 54 million square feet (5 million square meters) located in 31 states, Washington, D.C., and Australia, according to its website.
CommonWealth rose 1.4 percent today to $22.88. It has gained 44 percent since Feb. 25, the day before Corvex and Related made their activist efforts public.
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