Corvex, Related Seek to Block CommonWealth Stock Offering

By Phil Milford - Mar 4, 2013 7:39 AM ET

Corvex Management LP and Related Cos. sued CommonWealth REIT (CWH) to block a stock sale set to be completed tomorrow, saying the offering will harm existing shareholders.

“The equity offering is being pursued by the company to defeat efforts by existing shareholders to effect change at the company,” Corvex and Related said in the complaint filed March 1 in federal court in Boston.

CommonWealth priced 30 million shares on Feb. 27 at $19 each. Corvex and Related, which together own 9.8 percent of the Newton, Massachusetts-based real estate investment trust, had an offer to acquire CommonWealth for $27 a share before the pricing.

Corvex and Related alleged that CommonWealth’s trustees disseminated false and misleading statements and defrauded the landlord’s shareholders. The trustees are using the equity offering to place large blocks of stock in “friendly hands” and disenfranchise existing shareholders, according to the complaint.

Bylaw amendments proposed by CommonWealth “are an act of desperation and an indication that CWH’s board is truly terrified at the prospects of facing its shareholders,” Keith Meister of Corvex and Jeff T. Blau of Related said in a statement.

Luxor Capital Group LP, the owner of an 8 percent stake in CommonWealth, on March 1 asked the company’s board to form an independent committee to explore “strategic alternatives” for the company.

‘Below Market’

“We find it unconscionable that the board of trustees would vote to issue shares significantly below market in light of the offer on the table from a credible buyer at a significant premium,” Luxor, a New York-based investment manager, said in a letter to the board.

Corvex and Related project that CommonWealth’s real estate assets are worth about $40 a share, according to a Feb. 26 regulatory filing, and assert that poor management has driven down the value of the stock.

Delaware County Employees Retirement Fund, a Pennsylvania pension fund that says it owns CommonWealth shares, on Feb. 28 asked the federal court in Boston to halt the equity offering.

CommonWealth owns downtown and suburban office buildings and industrial properties in U.S. cities including Chicago, Denver and Philadelphia.

The case is Corvex Management LP v. CommonWealth REIT, 13- cv-10475, U.S. District Court, District of Massachusetts (Boston). The previous case is Delaware County Employees Retirement Fund v. Portnoy, 13-cv-10405, U.S. District Court, District of Massachusetts (Boston).

To contact the reporter on this story: Phil Milford in Wilmington, Delaware atpmilford@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net