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Corvex Capital & The Related Companies Continuing Proxy Battle With Portnoys Over CommonWealth Realty Trust

Jeff-Blau- Keith Meister - Adam Portnoy

 (L-R) Jeff-Blau, Keith Meister and Adam Portnoy

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Keith Meister is the Managing Partner of Corvex Capital in New York, and yesterday it was made public that he has turned down an offer to join the board of Trustees of CommonWealth Real Estate Investment Trust (REIT). The invitation had recently been extended to him by Barry and Adam Portnoy, the father and son duo who presently control the Trust, as a sort of peace offering for the many months they had been in dispute during 2013.

CommonWealth REIT is a large, nationwide office real estate investment trust. It owns about US$6.8 billion of properties with approximately 52 million square feet, located in 31 states, Washington, D.C. and Australia. Listed on the New York Stock Exchange, CommonWealth REIT has a market capitalization of approximately US$2.75 billion.

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Keith Meister is an activist investor who graduated from the Carl Icahn school of corporate disruption, then went off on his own to found his own hedge fund in December 2010. Since February 2013, he and the New York based real estate development firm The Related Companies have been taking pot shots at the Portnoys for, in their view, significant corporate mis-governance – including syphoning out excessive fees from the Trust to their own outside management firm. The point man at Related Companies for this effort is Jeff Blau who is Related’s CEO, though he has left all the running to Keith Meister.

REIT PROPERTY  Herald Square 1250 H Street,    NW Washington DC

One of CommonWealth Properties / Herald Square 1250 H Street, NW Washington DC

CommonWealth did not take long to respond to being jilted by Meister, and issued a statement yesterday as well saying as follows :

“The CommonWealth Board is disappointed that Keith Meister of Corvex declined our invitation to join the Board and work with us constructively for the benefit of all CWH shareholders. Corvex’s response is further evidence that Corvex and the Related Companies are pursuing a hostile takeover of CWH for their own benefit and are not committed to advancing the best interests of and creating value for all CWH shareholders.”

In February of 2013 Corvex and Related revealed they had picked up nearly 10% of the Trust’s shares and were seeking to oust the Portnoys from control of the Trust.

Despite many administrative hurdles put in their way they launched a proxy attempt to dislodge the Portnoys from the Board of Trustees of the Trust, and to put in their own slate, and announced in June they had achieved a 70% vote in favour, surpassing the two thirds majority vote required for such an effort.

This was later invalidated in November by an Arbitrator, which Jewish Business News reported, but only on procedural grounds. The Arbitrator also indicated it would be appropriate to hold another vote and then specified the methodology such a vote should follow, including far less restrictive conditions than those the Portnoys had previously imposed – basically as a means of defence against Corvex.

It was expected that Meister and Related would renew the battle in the New Year and ask again then for a new vote. By rejecting the invitation to join the Board they are now signaling that this is exactly what they are going to do. If CommonWealth Realty Trust had been hoping to split Meister away from his partnership with Related by the offer of a board appointment it has obviously not been successful.

Accordingly, Corvex and Related announced yesterday their own proposed slate of five independent nominees, setting the stage for another contested shareholder vote for Commonwealth’s Board of Trustees. The investors’ goal remains to remove the entire existing seven member Board.

Keith Meister and Jeff Blau stated with their proposed new slate, “Our slate of truly independent, accountable trustees will enable us to achieve our sole goal from the beginning – ceasing the value destruction caused by the Portnoys and enabling CommonWealth shareholders to take back their company.”

Even though they won a 70% vote last time around it may not be so easy this time, as the passage of time has given the Portnoys more time to harness some support themselves. The last time, too, they did not even formally solicit against it as they, correctly as it turned out, believed it was not procedurally well formulated – and they should know as they built the procedures carefully themselves, like Rommel preparing for the invasion of Normandy in 1944.

Corvex and Related will now be presenting consent solicitation materials with the SEC for the next round. Corporate governance is a messy business. It is also a time consuming one. This dispute has already been running for nearly a year and it could yet be many more months until we know the resolution.

If the Portnoys think they have a blocking one third of the votes + 1 they will continue to battle tooth and nail. If the two influential institutional shareholder advisory firms, one called Institutional shareholder Services, or ISS, and the other Glass Lewis, both come out again in favour of the Corvex/Related position, as they did last time around, and Meister holds his existing coalition together, then this will undoubtedly increase pressure on the board of Trustees itself to find a way to settle and pave the way for a new beginning.

At a certain point people, who are fighting what eventually become clearly a losing cause, see that subsequent litigation could be very expensive for them then a peaceful capitulation becomes possible. That inflection point has not arrived yet, but may do so over the months ahead depending on how it plays out.

In the meantime CommonWealth REIT shares are more or less unchanged at around US$23.00, and the trust continues to have a market capitalization of US$2.75 billion – something worth fighting over to be sure.




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