Corvex and Related Increase Offer for CommonWealth

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Corvex and Related increased their offering price to $27 per share.  Investors have filed a lawsuit against the company to stop the equity offering.  Stock decreased 10 percent on Wednesday. 

Keith Meister and Related Cos are prepared to increase the buyout offer for office building operator CommonWealth REIT to $2.26 billion, which is $27 a share.  This new proposal is subject to CommonWealth engaging in talks and cancelling its planned equity offering, according to a letter that both companies wrote to the real estate trust’s board. 

The investors own a combined 10 percent state in the company and originally made an offer of $25 per share.  They said they’ve also received interest for some of CommonWealth’s properties at substantially more than their valuations. 

On Wednesday, investors trying to prevent CommonWealth from proceeding with the buyout filed a lawsuit against the company.  Shareholders feel the equity offering and planned debt repurchase will destroy shareholder value.  CommonWealth, however, refused to cancel the plans and hasn’t responded to neither the lawsuit nor the buyout offer. 

On Tuesday stock increased 50 percent only to decrease to $21.84 a share on Wednesday on the New York Stock Exchange, a 10 percent decrease.  A New York-based investment manager, Luxor Capital Group, who owns approximately eight percent of CommonWealth has demanded that the company form an independent committee to explore strategic alternatives.  However, Luxor is in favor of the Corvex and Related buyout deal. 

Shareholder’s main issue with CommonWealth is its externally managed structure, where management is compensated based on assets under management and not profitability. 

Stifel Nicolaus analyst John Guinee said, “We seriously doubt that CommonWealth, a company externally managed by RMR, fee oriented and known for weak corporate governance, is interested in selling.” RMR is REIT Management & Research, LLC, CommonWealth’s external advisor.  RMR also happens to own interest in other publicly traded REITs.  Guinee said RMR will fight shareholders’ efforts to prevent the proposed changes from threatening other RMR franchises such as Select Income REIT, Senior Housing Properties Trust and Hospitality Properties Trust. 

According to shareholders, CommonWealth makes acquisitions regardless of returns because of its incentive programs.  A representative for a shareholder (who asked not to be named) said, “There are conflicts everywhere but this (share offering) is by far the most egregious step they have taken.”   In December the company claimed they would not accept an equity offering because their balance sheet was in good shape, in response to a concerns conveyed by the shareholder


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