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The Deal: CommonWealth REIT Investors Eye New Campaign

NEW YORK (The Deal) -- CommonWealth REIT (CWH) won what could be a short-lived victory in its battle against activists trying to oust its board as an arbitration panel ruled the initial effort was invalid, but determined a new campaign could proceed.

The Newton, Mass.-based REIT has been battling investors Corvex Management and Related Fund Management, which together own about 9.6% of CommonWealth's shares, over a plan by the investors to overhaul CommonWealth's relationship with its external management company and improve corporate governance.

The two investors in April kicked off a campaign to remove CommonWealth's board of trustees, claiming in June that they had support of more than 70% of shares. But CommonWealth countered that the campaign was invalid under its bylaws.

An arbitration panel chaired by California-based attorney Henry J. Silberberg ruled that the consent solicitation initiated by the investors "was not properly conducted and cannot be validated," according to CommonWealth.

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But the investors in a separate statement noted that the panel said CommonWealth's bylaws "erect a complex wall of procedural hurdles," and said that Corvex and Related can start a new effort under guidelines established by the panel. Among the rules the panel criticized was a bylaw adopted in March that required a shareholder to own at least 3% of the company for a minimum of three years before launching an effort to overhaul the board.

Both sides hailed the ruling as a victory. Adam Portnoy, managing trustee and president of CommonWealth, said the board was "pleased" by the ruling and that the company would continue to execute on its plan.

"In the event Corvex/Related decide to undertake a proper consent solicitation in the future, we are confident that shareholders will support the board, which has been acting in the long-term interests of shareholders," Portnoy said.

The investors made clear that they intend to do just that. The firms in a statement said that they would "expeditiously" notify CommonWealth, its trustees and the arbitration panel of their intent to pursue a new solicitation and file a preliminary consent solicitation statement with the Securities and Exchange Commission.

Corvex's Keith Meister and Related's Jeff Blau in a joint statement called the panel decision "a tremendous victory for shareholder democracy and for all CommonWealth" holders.

"With the path cleared by the panel's decision, we firmly believe it is a foregone conclusion that shareholders will take back CommonWealth," the investors said.

Written by Lou Whiteman

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