By A. Ananthalakshmi
Feb 27 (Reuters) - Activist investor Keith Meister and real
estate major Related Cos said they were prepared to increase
their buyout offer for office building operator CommonWealth
REIT to $2.26 billion, or $27 per share.
The new proposal is subject to CommonWealth cancelling its
planned equity offering and engaging in talks, Corvex and
Related wrote in a letter to the real estate trust's board, a
copy of which was obtained by Reuters.
The investors, who reported a combined 10 percent stake in
the company on Tuesday and made an offer of $25 per share, also
said they have received expressions of interest for some of
CommonWealth's properties in excess of their earlier valuations.
Earlier on Wednesday, the investors filed suit against
CommonWealth in Maryland to prevent it from proceeding with a 27
million share offering.
The shareholders say the equity offering and planned debt
repurchase is "value destroying."
CommonWealth refused to cancel the plans and has not
responded to the lawsuit and the buyout offer.
The company did not return call seeking comment.
Shares of the company fell 10 percent to $21.84 on the New
York Stock Exchange, after rising 50 percent on Tuesday.
Luxor Capital Group, a New York-based investment manager
owning about 8 percent of CommonWealth, has also come out in
support of Corvex and Related and demanded that CommonWealth
form an independent committee to explore strategic alternatives.
The shareholders' main point of contention is CommonWealth's
externally managed structure whereby its management is
compensated based on the assets under management, not
CommonWealth's external adviser is REIT Management &
Research LLC (RMR), which also owns interests in other publicly
"We seriously doubt that CommonWealth, a company externally
managed by RMR, fee oriented and known for weak corporate
governance, is interested in selling," Stifel Nicolaus analyst
John Guinee said.
He said RMR will use every means possible to fight the
shareholders' efforts as the proposed changes suggested by them
may threaten other RMR franchises like Select Income REIT
, Senior Housing Properties Trust and Hospitality
Shareholders point to several conflicts of interest at
CommonWealth. They say the company's incentive scheme prompts it
to make acquisitions regardless of the returns.
"There are conflicts everywhere but this (share offering) is
by far the most egregious step they have taken," said a
representative for a shareholder, who asked not to be named.
The shareholder had conveyed its concerns to the company in
December regarding any potential share offering, this person
He said management had assured them at the time that they
would not go in for an equity offering as their balance sheet
were in good shape.
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