Activist Firm Corvex Seeks American Realty Board’s Ouster

Activist investment firm Corvex Management is turning up pressure on American Realty Capital Properties Inc., calling for the ouster of the board after accounting issues that led to the departure of senior management last year.

Corvex has accumulated a 7.7 percent stake in American Realty Capital Properties, or ARCP, and has been rejected in efforts to have shareholder representation on the board, the investor said in a letter to the Phoenix-based company that was included in a statement issued Monday. Corvex also included a letter addressed to prospective candidates for chief executive officer or chairman of the real estate investment trust.

New executives should “purge any remaining ties with past affiliated entities and leadership,” said Corvex, run by former Carl Icahn protege Keith Meister. “If a new CEO or chairman embraces these principles, that person should be able to garner the full support of ARCP shareholders.”

ARCP has fallen about 25 percent since disclosing on Oct. 29 that it had accounting errors that were intentionally concealed, leading to the departure of its senior leadership. The shares were little changed on Monday, closing at $9.25.

The board “welcomes input from the company’s shareholders on all matters and has had numerous conversations and meetings with Corvex Management since December,” when the investor first disclosed its stake, ARCP said in an e-mailed statement.

Financial Statements

The REIT said it is focused on releasing restated financial statements and its third-quarter results as well as recruiting a new CEO and non-executive chairman.

“We will turn to the composition of the board once this very important work is completed,” ARCP said.

The board was led by ARCP co-founder Nicholas Schorsch until his resignation in December. Under Schorsch’s leadership, ARCP became the biggest U.S. owner of single-tenant properties in less than three years. CEO David Kay also resigned. Corvex said it would be willing to keep Bruce Frank, who joined the board in July, as a director.

“There are lot of different ways it could play out,” Paul Adornato, an analyst at BMO Capital Markets in New York, said in a telephone interview. “The board could decide to work with Corvex and jointly undertake the CEO search process, or the board could continue to do its own thing and ignore Corvex’s recommendations.”

If it ignores Corvex, that could lead the investment firm to take “more aggressive action,” including nominating its own candidates for the board, Adornato said.

Corvex last year took part in the successful overthrow of the board of Commonwealth REIT, an office landlord now known as Equity Commonwealth.

ARCP has a deadline of early next month to file financial statements for the third quarter under an agreement with a group of debt holders, according to a Jan. 22 statement.

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