Corvex Management LP and Related Cos., which sued CommonWealth REIT to block a stock sale set to be completed Tuesday, said they would buy the shares at the $19 offering price if litigation caused the sale to falter.
“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 Boston federal court. CommonWealth priced 30 million shares on Feb. 27 at $19 each.
CommonWealth shareholder Delaware County Employees Retirement Fund Monday asked U.S. District Judge Denise Casper in Boston in a separate case for an order blocking the equity offering from closing. After hearing arguments from lawyers on both sides, in both cases, Casper said she would rule on the temporary restraining order by the end of the day.
Corvex and Related attorney Adam Offenhartz said they will file an affidavit promising to pay $19 a share if the stock sale falters because of uncertainty arising from litigation. They asked the judge to schedule a hearing on an injunction against the sale. If no injunction is issued, they would buy the stock, he said.
“My clients will buy the entire equity offer at $19 per share,” Offenhartz said. “We will backstop it so the company won’t be harmed.”
CommonWealth owns downtown and suburban office buildings and industrial properties in U.S. cities including Chicago, Denver and Philadelphia. 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.
“Management is out of control and they are circling the wagons against their shareholders,” Nicholas Chimicles, a lawyer for the Delaware retirement fund, told the judge today. “They’re putting 30 percent of the company in the hands of new stockholders we believe have been cherry-picked.”
CommonWealth lawyer Robert Saunders said there’s no evidence of selective selling of the new shares and warned of negative consequences if the sale is stopped. He also said many buyers of the shares have sold them to other buyers.
“If your honor were to restrain the first settlement of the shares, that will have an enormous cascading effect of failed trades,” Saunders told the judge. “The eggs are already scrambled, your honor.”
The retirement fund sued CommonWealth founder Barry Portnoy and members of its board of trustees over the planned stock sale.
The trustees are using CommonWealth’s equity “to entrench themselves and discourage any proposal to acquire” CommonWealth shares, the fund said in court papers.
A CommonWealth spokesman couldn’t be reached for comment about the lawsuits. Lawyers for the trustees said in court papers that CommonWealth was raising equity and cutting debt to maintain an investment-grade credit rating. The request for a restraining order should be denied, they said.
Corvex and Related alleged that CommonWealth’s trustees disseminated false and misleading statements and defrauded the landlord’s investors.
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.
CommonWealth rose 13 cents to $23.90 in New York Stock Exchange composite trading Monday, but fell 4.2 percent to $22.90 in aftermarket trading.
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.”
“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.
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).
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