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CommonWealth unfazed by activist shareholder ire

by Lou Whiteman  |  Published February 27, 2013 at 10:33 AM
CommonWealth REIT Inc. said Wednesday, Feb. 27, it plans to proceed with a common share offering and debt tender despite opposition from a group of large shareholders who are weighing a bid for the operator of office buildings.

Newton, Mass.-based CommonWealth in a statement said that its board had determined that it was in the company's best interest to proceed with the transactions, which were announced Monday. On Tuesday, Corvex Management LP and Related Fund Management LLC, which together own about 9.8% of the REIT's stock, said they would sue to block the offering and suggested they might be willing to buy the company for at least $2.1 billion.

Corvex and Related, in a letter to the CommonWealth board, expressed their "vehement opposition" to the company's equity offering and said they wished to discuss a deal that would value CommonWealth shares at $25 apiece, "with the opportunity to meaningfully increase this offer" after completing due diligence.

Shares of CommonWealth were trading at about $21 on Tuesday when the letter was released, and closed at $15.85 on Monday, prior to the funds disclosing their stake.

The funds said that CommonWealth has yet to respond to their requests "while simultaneously continuing the marketing efforts for your value destructive equity offering." They called those actions "a dereliction of your fiduciary duties."

A third investor, New York-based Luxor Capital Group, has expressed its support for Corvex and Related and has pushed CommonWealth to form a board committee to explore strategic alternatives. Luxor, which owns about 8% of the REIT's shares, said its December requests to meet with the company was denied.

"You have now publicly heard that at least 18% of your shareholders do not support the offering, and we believe that the number opposing it is actually much higher," Luxor wrote in a letter to CommonWealth's board. "We implore you to heed the advice of the owners of [CommonWealth] and cancel this unnecessary and highly dilutive offering and immediately form an independent committee."

CommonWealth in its announcement Wednesday said that its board made its decision to proceed with an offering of 27 million shares after considering the letter and regulatory filing from Corvex and Related, but offered no further comment on the funds' remarks.

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Tags: CommonWealth REIT Inc. | Corvex Management LP | Luxor Capital Group | Related Fund Management LLC

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