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Well shareholder democracy works in the end, it seems, though it sometimes takes quite a lot of persistence.
Last night Keith Meister’s activist hedge fund Corvex Management and Related Fund Management, led by Jeff Blau who is also the CEO of its sponsor The Related Companies, announced that they have presented consents from holders of over 81% of the outstanding shares approving their proxy consent solicitation proposal to remove the entire Board of Trustees of CommonWealth REIT.
CommonWealth Realty Trust is a publicly listed real estate investment trust, or REIT, incorporated in the state of Maryland. Many REITSs incorporate in Maryland as its laws governing the establishment of such trusts are quite management friendly. These include permitting founding articles to require a 66.7% threshold of shareholder votes to remove the Board of Trustees from office. A Board of Trustees is the ultimate governing body of a REIT, similar to the Board of Directors of a regular joint stock company.
Pursuant to an Arbitration Award issued last November, CommonWealth now has five business days, or until March 25, 2014, to have the written consents inspected and the results of the new solicitation declared. This result is obviously substantially above the 66.7% required threshold to remove the Board of Trustees and is a big win for Corvex and Related.
Their victory comes however only after a protracted activist shareholder battle that began in February of last year, when Corvex and Related announced they had become significant shareholders, with almost a 10% holding in the company, and commenced agitation for change at the REIT.
The activist case for going after the Portnoys stewardship of CommonWealth REIT has along been the poor business performance of the trust over an extended period, represented by the corresponding poor performance of its shares.
In addition, Corvex and Related heavily criticized what they asserted were highly dubious levels of external management fees. The external property management of the trust has been in the hands of RMR Advisors, which is a company controlled by the father and son team, Barry and Adam Portnoy, who also control the management of CommonWealth REIT itself.
Finally, Corvex and Related asserted the existing Board of Trustees were, effectively, merely stooges supporting management who had failed to perform their independent fiduciary duties of oversight and control.
A first consent solicitation, held last summer by Corvex and Related, received a 70% vote in favour of removal of the Board of Trustees, which was indeed above the required threshold. This vote was later overturned by, an arbitration panel, in November but only on procedural grounds. However the arbitration panel then set out new, and fair, rules for another vote, which is the one that has now just taken place.
The two leaders of Corvex and Related said last night on announcing the unofficial result, “The shareholders have exercised their rights and we look forward to working with the Trustees in the coming days to arrange for an orderly transition process that best protects the interests of all shareholders. We will immediately reach out to the Trustees to begin these discussions.”
Barring any improprieties in the way the solicitation was administered, which must be unlikely this basically means the reign of Barry and Adam Portnoy is over, as regards CommonWealth REIT.
It seems CommonWealth REIT are obliged legally now to order one more shareholder vote, this time for a new Board of Trustees to be held within 60 days at a Special Meeting of shareholders. Such a vote will presumably now also select the new slate of Trustees put up by Corvex and Related.
Their proposed new slate will be led by their nominee for Chairman Sam Zell, and his side kick David Helfand who will then become CEO of the Trust with the stated goal of internalizing its property management, and of managing the business more effectively – all on behalf of all the Trust’s shareholders henceforth.
CommonWealth REIT presently has a market capitalization of over US$3 billion, with its shares having risen considerably in recent months together with the deemed probability of the events that have just taken place. Since the Portnoys also externally manage four other REITS as well, one can certainly wonder if they might perhaps become under scrutiny in one or more of these as well, later on in the year.