ISS Backs Dissidents Corvex & Related In Proxy War For Commonwealth REIT

Keith Meister of hedge fund Corvex Capital and Jeff Blau of The Related Companies, the major private new York real estate development group, have been waging a proxy battle for a year now against the Portnoys, Adam and Barry, father and son, who control the management of Commonwealth Realty Trust,  a Merton Massachusetts based office REIT, listed on the New York Stock Exchange.

It has been a fascinating struggle, and one where great persistence has been demonstrated by both sides of the argument. After many obstacles were put in their way, the two dissident shareholders of the REIT,  who control about 9.6% of the shares, won an initial vote last summer with a 70% majority.

This vote was then invalidated in November by a panel of arbitrators, but on procedural grounds only,  and now a new, properly constituted ballot is being held with new, and fair, rules that they have laid down. Accordingly, a final denouement, one way or another, seems not too far off with a proxy vote now being undertaken by mail-in ballot, on the question of removing the entire board of trustees of the trust.

If that vote should succeed then a later vote would be held, in order to vote on a new slate of trustees which has been proposed by Corvex and Related.

As additional weaponry to add to their arsenal for the fight, in February Corvex and Related added billionaire real estate investor Sam Zell to their slate, as their proposed Chairman for the trust, and his partner at Equity Investments David Helfand who would become CEO if they should prevail.

As the latest indication that things might again turn out their way, the influential Institutional Shareholder Services group, which advises major investors in public shareholdings on corporate governance matters,  has just yesterday come out swinging in favour of the Corvex and Related proposals, much as they did the last time around too.

This time ISS points out, in the dry language of such reports, “On balance it seems clear…..that the dissidents have made a compelling case that change at the board level is necessary.”

Then after a number of other fairly critical comments ISS looks at the rise in the Commonwealth REIT stock price that has taken place since the activists began their campaign a year ago, “Ultimately this market response suggests that investors…. saw their arrival as a beacon of hope.”

Finally ISS does come out and recommend specifically shareholders vote for the dissidents proposal,  which as it is a mail-in proxy fight becomes the rather prosaic matter of picking the right colour consent card and returning it, signed, to be counted later with all the others.

The ISS position is powerful ammunition for Corvex and Related’s case therefore, and may well sway some investors who otherwise might be content to still sit on the fence. Of course the general rise in the stock market in 2013 may also have had some effect on Commonwealth REIT’s shares going up too, as the S&P 500 itself went up by around 30% during the year.

So it may be hard to say the share rise is all because of the dissident investors. But then,  using the same argument, it may be hard to say it is because of Commonwealth REIT’s particular management brilliance either.

One way or another now the shareholders are going to have their say and decide the issue, which is exactly as it should be. Commonwealth REIT is an important company, with a market capitalization currently of US$2.9 billion and it deserves to be able to go back to business again, with this issue resolved and put behind it.