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CommonWealth REIT (NYSE:CWH) today issued a statement regarding the role of Keith Meister, principal of the hedge fund Corvex Management LP (“Corvex”), in significantly increasing the leverage of The ADT Corporation (NYSE:ADT) for his own benefit and to the detriment of ADT’s long-term shareholders.
The CWH Board of Trustees believes that a similar financial engineering scheme is now being pursued by Related Fund Management, LLC and Corvex (“Related/Corvex”) at CWH. As was the case with ADT, Meister is advocating financial strategies that might provide a short term benefit for Corvex at the expense of long-term shareholder value at CWH.
In October 2012, Meister outlined his position that ADT’s stock was significantly undervalued and could be worth almost 65% more within a year if ADT followed his plan*. Meister urged ADT to significantly increase its leverage by raising debt and to use those proceeds to repurchase shares of ADT’s common stock. Under pressure from Meister and the threat of a costly and disruptive proxy contest, in December 2012, ADT’s board approved the repurchase of $2 billion worth of shares and added Meister to the ADT board. In November 2013, ADT agreed to repurchase an additional 10.2 million shares of ADT stock from Corvex, as part of an agreement for Meister’s departure from the ADT Board. Corvex’s most recent 13F filing with the Securities and Exchange Commission confirms the short-term nature of Meister’s investment; as of December 31, 2013, Corvex had liquidated its entire position and owned no shares of ADT.
The ADT scheme provided Corvex with a return of approximately 20%**, while leaving the company in a significantly weaker financial position with substantially increased debt leverage and lower credit ratings. Since Meister locked in his profits and resigned from the ADT Board less than four months ago, ADT’s stock has declined by approximately 29%.***