Published On: Thu, Jan 30th, 2014

Keith Meister of Corvex and Jeff Blau of Related File Proxy Materials Against Portnoys Re CommonWealth REIT

Well the gloves are now truly off in an impending proxy battle launched by New York based activist hedge fund Corvex Management and its partner Related Fund Management, an investment company affiliated with real estate developer The Related Companies. They are seeking to dethrone Barry and Adam Portnoy the father and son team who control the enormous CommonWealth REIT, which is based in Newton Massachusetts, new SEC filings reveal.

 

Jeff-Blau- Keith Meister - Adam Portnoy

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


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 across America, and in Australia. Listed on the New York Stock Exchange, CommonWealth REIT currently has a market capitalization of about US$2.9 billion.

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In February of last year 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 at that time.

After gaining a 70% favourable vote from shareholders in November, enough to remove the Board. However enough procedural roadblocks had been raised by the Portnoys, which then led an Arbitrator to deny the result but instead to permit another vote, and one this time with considerably simplified rules which he laid down removing those same roadblocks.

The Portnoys then tried earlier this month to separate the two investment firms, by offering a seat on the Board to just one of them in a manoeuvre that was as transparent as it was unsuccessful.

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

Keith Meister and Jeff Blau also stated then with their proposed new slate, this time of just five new board members, “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.”

Therefore today Corvex, which is led by former Icahn manager Keith Meister, and Related, led by Jeff Blau who is also CEO of The Related Companies itself, have formally filed new consent solicitation materials with the SEC and published today an open letter to shareholders stating their objectives in conducting again a proxy fight to unseat the Portnoys, which they lay out in detail in a formal presentation.

The Portnoys have also responded in kind with a formal response in an SEC filing, stating their opposition to the plan and requesting shareholder support to negate the proposals.

With the formal filing of the consent solicitation CommonWealth REIT must now set a formal record date for a vote. If the proxy vote succeeds then the Trust will be obliged to then call a special shareholders meeting to implement the result.

In putting the process in motion Corvex and Related have gone to some lengths to publicize their positions, even setting up their own special website for shareholders to stay up to date as the matter now unfolds. The essence of their presentation boils down to claims of mismanagement of the REITS activities, and withdrawal of excessive fees by the Portnoys to manage the business, sucked out of the REIT to an outside property management company, which they control.

In addition, even though the real estate trust’s shares fell from nearly US$52 per share to the low twenties today, over six years, and moreover to only the mid teens when they first announced their proxy intentions last February, the fees paid to the Portnoys instead went up 40 percent.

With the new filing today Meister and Blau also say,

“After consulting with fellow shareholders, we are excited to propose a strong slate of nominees with significant, relevant real estate industry expertise, who we are confident have the track records and corporate leadership experience to create significant, long-term value for CommonWealth and all of its shareholders.” They then continued in declaratory fashion,

“The Portnoys’ time is up – and no amount of illusory governance promises can cleanse their 28-year track record of abysmal performance or the unconscionable actions taken in the past year designed to deny you your right to decide the future of your company.”

Let battle commence.

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