CommonWealth REIT, the embattled real estate trust, recently extended an olive branch to the activist shareholders pressing the company for change.
Those shareholders, Corvex Management and Related Fund Management, turned down CommonWealth’s offer to join the board, and are now taking their case to the company’s shareholders.
On Thursday, Corvex and Related began a consent solicitation process aimed at replacing the CommonWealth board. Corvex is led by Keith Meister, a former deputy of Carl C. Icahn, while Related Fund Management is an investing arm of the Related Companies, the huge New York real estate company run by Jeff T. Blau. The investors are frustrated with the Portnoy family, which controls CommonWealth, and has been drawing substantial fees from the company even as performance has lagged.
In a presentation to shareholders, Corvex and Related reiterated their argument against the Portnoys’ management. They contend that while CommonWealth stock fell 68 percent from 2007 to 2013, the fees paid to the Portnoys increased 40 percent. The Portnoys, meanwhile, own very little stock in the company.
They also contend that recent governance changes put forth by the Portnoys, aimed at appeasing shareholders, are irredeemably flawed. With new management, Corvex and Related argue, CommonWealth stock could be worth about $35 a share, about 50 percent higher than the current value.
To achieve their goals, Corvex and Related are proposing the election of a new independent board of directors, the amendment of CommonWealth’s bylaws to adopt corporate governance changes recommended by proxy advisory firms, and a stipulation that no poison pill could be adopted without the approval of shareholders.
“Until CommonWealth’s long-suffering shareholders have the unambiguous ability to choose who should manage their company, history will repeat itself as the Portnoys delay their day of judgment through an illusory game of governance restructuring and legal maneuvering, all the while paying themselves large fees for underperformance,†Mr. Meister and Mr. Blau wrote in a letter to shareholders.
Corvex and Related believe they have the momentum to receive enough votes to oust the board. In November, an arbitration panel cleared the path toward a consent solicitation process. The presentation and voting instructions were sent to shareholders on Thursday.
