Dissidents claim victory against CommonWealth

NEW YORK — For more than a year, an activist hedge fund and a prominent real estate developer have pressed for change at a real estate investment trust. And for more than a year, the father-and-son team that controlled Newton-based CommonWealth REIT fended off these dissidents.

But on Tuesday, the hedge fund, Corvex Management, and the developer, Related Fund Management, which together own 9.6 percent of CommonWealth’s shares, declared a hard-fought victory. Shareholders representing more than 81 percent of the company’s outstanding stock voted to replace the entire board as part of a consent solicitation process.

The vote sets in motion a process that will almost certainly result in the ouster of Barry M. Portnoy and his son, Adam D., who control CommonWealth with a management company that receives lucrative fees to operate the properties CommonWealth owns.


The Portnoys were paid $77.3 million in 2012, up from $59.7 million in 2007.

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CommonWealth’s stock, meanwhile, declined 68 percent in the five years before Corvex and Related arrived.

Those seemingly excessive fees, and other concerns about poor corporate governance, are what inspired Corvex and Related to begin their campaign, pledging to “maximize value” for all shareholders, not just the Portnoys.

“The shareholders have exercised their rights, and we look forward to working with the trustees in the coming days to arrange for an orderly transition process that best protects the interests of all shareholders,” Keith A. Meister, founder of Corvex and a former protégé of Carl C. Icahn, and Jeff T. Blau, chief executive of Related, said in a statement. “We will immediately reach out to the trustees to begin these discussions.”

Results of the consent solicitation process were announced two days before a deadline Thursday by which Corvex and Related needed to persuade at least two-thirds of shareholders to oust the current board.


Shareholders have reason to believe change is coming. In previous comments, the Portnoys suggested they would not block the process.

“CommonWealth will comply with the requirements of the declaration of trust and the panel order,” the company said last month, indicating it would allow for the replacement of its board.

The company will call a special meeting in coming months, the board will step down, and shareholders will presumably vote in directors nominated by Corvex and Related. That slate was updated last month to include the billionaire real estate mogul Sam Zell, a move intended to give shareholders confidence in the team taking over CommonWealth. It also includes David Helfand, a copresident of Zell’s private investment firm, who is the presumptive chief executive of CommonWealth under the new board.

Though the Portnoys indicated they would comply with shareholders’ wishes, they have mounted a fierce defense over the last year, advised by lawyers at Skadden, Arps, Slate, Meagher & Flom. Among other tactics, they have invoked an obscure Maryland statute that prevents board members from being removed for cause and issued new shares to buy back debt in a move Corvex and Related said was intentionally diluting their positions.

When Corvex and Related called for a vote on directors last year, 70 percent of shareholders voted to oust the board. The Portnoys invalidated that vote on technicalities.


In November, however, a judge said a binding vote could proceed. Corvex and Related declined to comment beyond their statement. CommonWealth and Skadden did not immediately respond to requests for comment.

The REIT’s stock rose 2 percent Wednesday to $27.35.