A pair of investors unhappy with a proposed equity offering/debt tender made by CommonWealth REIT have filed suit in a Maryland state court seeking to stop the real estate investment trust from proceeding with the actions. Subsequent to the filing, these same investors have raised their proposal to buy the REIT by $2 per share.
Corvex Management LP and Related Fund Management LLC collectively own 9.8% of CommonWealth REIT.
On Tuesday the pair made public a letter they sent to the CommonWealth board asking that the REIT drop the offerings and instead enter into negotiations over a proposal they say could drive CommonWealth’s stock price to $50 per share over a two-year period.
In the letter they state they have done a property-by-property analysis which said the REIT’s net asset value was approximately $40 per share, well above the $15.85 CommonWealth closed at on Feb. 25 when the offering was announced. The next day, after the opposition became known, CommonWealth shot up to $24.40 per share.
The pair had made an alternative proposal on Tuesday to acquire CommonWealth at $25 per share. On Wednesday, after they filed their lawsuit, Corvex and Related increased the offer to $27, provided the equity offering was immediately cancelled and CommonWealth's management enters into discussions within 48 hours.
Corvex and Related also said they would seek removal of CommonWealth’s board if the REIT did not “adequately respond.”
Another investor, Luxor Capital Group LP, which owns 8% of CommonWealth, said it supports the Corvex/Related proposal. The Luxor letter said that it too had sought to meet with CommonWealth’s independent trustees, but had been rejected.
“You have now publicly heard that at least 18% of your shareholders do not support the offering, and we believe that number opposing it is actually much higher,” Luxor said. It also threatened legal action.
CommonWealth put out two statements, one after Corvex/Related made its initial proposal and one after the revelation of the legal filing, stating the company planned to stay the course regarding the equity and tender offerings. It was after the second statement that the Corvex/Related offer was increased.
CommonWealth, which owns office properties, lost $164 million in 4Q12 due to a $168 million asset impairment charge.