New Frenemies? Corvex/Related Cos. Takeover Move Gets a Divisive Invitation

Stephen M. Ross

Stephen Ross, Chairman, Related Cos.

Here's one way to fight a hostile takeover:  Invite your rival onto your board.

But the target REIT's invite to the hedge-fund investor who wants to own the company comes with a stern request:  dump your real estate investment partner.

Newton, Mass.'s CommonWealth REIT, which spent much of 2013 fighting off moves to have its board removed by New York investment company Corvex Management LP and real estate investment and management firm Related Cos., this morning issued a letter inviting a pursuer to come on board.

Saying that their goals were the same, the board's nominating committee asked Corvex CEO Keith Meister to join Commonwealth.  "We hope you agree that it is time for the fighting to end and for you to join the [CommonWealth] Board to collaborate with us on value creation for all [CommonWealth] shareholders," says the letter from Commonwealth nominating committee chair Joseph Morea.

The letter, asking for a halt to takeover activities, mixes the nice with the not-so-nice.  It tells Meister he needs to dump Related before he joins the REIT board, skewering Related's track record. 

Attacking Related chairman and founder Stephen Ross and chief executive office Jeff Blau (their bios can be found HERE), Morea writes to Meister that CommonWealth's board and independing nominating committee

believe that you would be the best representative of the Corvex/Related group to serve on the [CommonWealth] Board because the principals of the Related Companies have a very troubling history of service on boards of publicly traded real estate companies. When Mr. Blau served on the board of American Mortgage Acceptance Company, or AMAC, and when Messrs. Blau and Ross served on the board of Centerline Holding Company (f/k/a Charter Municipal Mortgage Acceptance Co., or "CharterMac"), it ended very badly for shareholders with a bankruptcy and a de-listing from the NYSE, respectively. Even though shareholders did poorly when Messrs. Blau or Ross served as board members of these companies, the Related Companies greatly benefited.

The letter goes on to recount the AMAC and Chartermac dealings with Related that it says resulted from the Blau and Ross participation.

Related had not responded at this posting.

The purpose of the CommonWealth press release this morning was to follow up on previous promises to increase its board's independence, and thereby stave off the hostile takeover efforts.  It had asked a leading corporate search firm, Korn/Ferry International, to identify new board members. 

The release today announces two new independent board members, for a total of five independent members. 

The problem for Meister and Related have been the other two board members, father-and-son team Barry and Adam Portnoy. They alleged repeatedly that the family's external management agreement was designed to generate profits for the family, at shareholders' expense, by charging fees to the REIT, as well as affiliated REITs.  The REIT itself doesn't have employees--the management is through the separate companies which pays the REIT fees.

For it's part, CommonWealth moved throughout last year to overhaul its operations, adding independent directors, and culiminating in late December announcements that changed the way the management company will pay the REITs.  (See on QuidnuncRE, "More Anti-REIT Takeover Moves," HERE.)

More Anti-REIT Takeover Moves
More Anti-REIT Takeover Moves

It also added independent members to its board--a process it suggests would be complete if Meister could join as the board's eighth member.

Meister, Corvex, and Related have backing from arbitrators to solicit CommonWealth shareholders for a no-confidence vote in the REIT's board.  Corvex and Related were unimpressed by CommonWealth's moves, and in response to the new management agreements on Dec. 23, said,

The Portnoys are a day late and a dollar short with these revocable modifications that pay lip service to shareholders and continue to limit basic shareholder rights. The fact remains that CommonWealth continues to maintain an outdated, extremely conflicted management structure, which has led to 27 years of underperformance and that has served to enrich only the Portnoy family. It must be recognized that the current management team and Board are responsible for multiple egregious actions taken over the past year in an effort to actively disenfranchise all shareholders. We believe our consent solicitation will enable shareholders to elect truly independent and accountable trustees in the near term, restoring value and effecting real permanent change for CommonWealth.

For today's CommonWealth announcements on its new directors and management changes, as well as the text of the letter asking Meister to join its board,  go HERE on CommonWealth's site.

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