Activist investor Keith Meister and Related Cos., who together own 9.8 percent of CommonWealth REIT, increased their bid for the company to $27 a share as they try to thwart its plan to issue 27 million shares.
The two investors said yesterday they were prepared to offer $25 a share for CommonWealth. Earlier, they 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 new offer is contingent upon suspension of the share offering and meeting with the two investors within 48 hours, they said in a statement. CommonWealth said today that it will proceed with the sale.
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.
“You continue to ignore your largest shareholders’ call for a cancellation of your proposed equity offering, and you continue to ignore our proposal to acquire all outstanding shares for $25 per share,” Meister and Blau said in a letter sent to the company’s board today. “We are prepared to increase our proposal to $27 per share.”
The Newton, Massachusetts-based real estate investment trust said in a previous statement 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 offer could be reduced if CommonWealth proceeds with the share offering scheduled for tonight.
Issuing 27 million additional shares will dilute CommonWealth’s outstanding stock by more than 30 percent, according to data compiled by Bloomberg, 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 as of 4 p.m. in New York.
If the company doesn’t cancel the share offering, Corvex and Related may try to replace members of the board, including CommonWealth President Adam Portnoy and his father, Chairman Barry Portnoy, according to a regulatory filing yesterday.
The case is Corvex v. CommonWealth REIT, Circuit Court for Baltimore City (Maryland)