CommonWealth REIT (NYSE: CWH) today sent the following letter to the Related/Corvex group in response to its letter dated January 21, 2014.
January 22, 2014
Mr. Jeff T. BlauRelated Fund Management, LLC60 Columbus CircleNew York, NY 10023
Mr. Keith MeisterCorvex Management LP712 Fifth Avenue, 23 rd FloorNew York, NY 10019Dear Messrs. Blau and Meister: The Independent Trustees and the entire Board have reviewed your letter dated January 21, 2014, which was published publicly before it was sent to us. First, the Board disagrees with the fundamental premise of your letter, which is that your interests are aligned with, or even similar to, those of other CWH shareholders. As your actions continue to make clear, Related (with the assistance of Corvex) is engaged in a hostile takeover attempt of CWH for its own benefit, while endeavoring to hide behind the veil of corporate governance. Before responding to the specifics of your letter, the Board would like to remind you that it has made real and significant changes to CWH’s governance and management compensation in response to specific suggestions received from shareholders, including you, during the last several months. 1. Board Composition: The Board has added two highly qualified, new Independent Trustees that were identified by the search firm Korn / Ferry International. Neither of these new Independent Trustees have any prior relationships with CWH, CWH’s Board or CWH’s manager. The Board also recently offered an eighth Board seat to Keith Meister of Corvex, which would have brought an end to the public disputes between CWH and the Related/Corvex group as well as increased the ratio of Independent Trustees to total Trustees on the CWH Board from the current 71% to 75%. Because Mr. Meister has failed to accept this offer, the Nominating and Governance Committee (comprised solely of Independent Trustees) continues to work with Korn / Ferry International to identify additional Independent Trustee candidates for CWH. 2. Board Structure & Guidelines: The Board is committed to declassifying the Board, starting at the 2014 annual shareholders meeting, regardless of whether the disputes between CWH and the Related/Corvex group have been resolved. Assuming this amendment to the CWH Declaration of Trust is approved by shareholders, one-third of Trustees will be elected in 2014, two-thirds will be elected in 2015 and the entire Board will be subject to annual elections beginning in 2016. The Board also established guidelines regarding minimum share ownership by Trustees of approximately $500,000 worth of CWH common stock. 3. Simplified Path for Shareholder Action at Annual Meetings: The Board has amended CWH’s Bylaws to make it easier for shareholders to make Trustee nominations and proposals at CWH’s annual shareholders’ meetings, including lowering the share ownership requirements to $2,000 worth of common stock for one year and simplifying the so-called “informational requirements”. These changes are already in place and applicable for CWH’s 2014 annual shareholders’ meeting. The Board has also resolved to submit to a shareholder vote at the 2014 annual shareholders’ meeting an amendment to CWH’s Declaration of Trust to change the voting standard in contested Trustee elections from a majority of shares outstanding to a “plurality” voting standard. 4. Board Leadership: The Independent Trustees are committed to designating a Lead Independent Trustee with clear and robust responsibilities. The selection of this individual and the specific responsibilities will be decided solely by the Independent Trustees once the Board is comprised of not less than 75% of Independent Trustees, which is currently anticipated to occur before the 2014 annual shareholders’ meeting. 5. Shareholder Rights Plan: The Board is committed to terminating, or letting expire, the current shareholder rights plan, which is currently scheduled to expire on October 17, 2014, upon the resolution of the disputes between CWH and the Related/Corvex group. The Board has already eliminated the “dead hand” provision of the shareholder rights plan which had prevented the redemption of rights by a successor Board. 6. Management Compensation: The Board has substantially restructured the management arrangement between CWH and its manager to further align the interests of management with shareholders while continuing to maintain CWH’s low overhead cost structure. As CWH shareholders have recognized, the changes above are meaningful, the Board’s commitment to continue implementing governance enhancements is resolute and there is no intention to reverse course.