UPDATE: 3/4/13, 2:32 p.m. Corvex and Related have filed suit in federal court in Massachusetts seeking to block the proposed stock offering by the CommonWealth REIT, according to Bloomberg.
At least four firms have landed lead roles in connection with a growing dispute between a group of activist investors seeking to buy the CommonWealth REIT (CWH), a large real estate investment trust that invests in U.S. office and industrial properties and is headed by a former chairman of Sullivan & Worcester.
CWH has retained Skadden, Arps, Slate, Meagher & Flom to head off the would-be buyers—a group headed by Keith Meister, a former key lieutenant to famed corporate raider Carl Icahn who founded his own hedge fund, Corvex Management, in 2010, and Jeff Blau, CEO of the Related Companies, a prominent real estate developer founded by billionaire Stephen Ross. Both Corvex and Related own nearly 10 percent of CWH, which they sued this week in order to try and bar the REIT from offering 27 million in new shares.
But Newton, Massachusetts–based CWH announced Wednesday that it would go ahead with the equity offering, despite a revised takeover bid by Corvex and Related to buy the REIT for roughly $2.26 billion. The activist investors have retained Gibson, Dunn & Crutcher and Baltimore–based Ober Kaler for a complaint filed in Maryland state court in Baltimore that accuse CWH and its management of breaching their fiduciary duties.
REITs are required by federal law to distribute 90 percent of their earnings to shareholders in the form of dividends in return for special tax considerations. The proposed share sale by CWH reduces the amount in dividends paid to shareholders like Corvex and Related because it dilutes their holdings by more than 30 percent, according to Bloomberg.
John "Jack" Morkan III—cochair of the Ober Kaler’s construction group and a member of the firm’s litigation practice in Baltimore—is representing Corvex and Related in the litigation, along with Gibson Dunn litigation partner Adam Offenhartz in New York. Offenhartz did not respond to a request for comment about the action and two Gibson Dunn spokeswomen also did not respond to inquiries about whether the firm was also providing corporate counsel to the two activist investors in their bid to take control of CWH.
In a letter to CWH’s board of trustees filed with the SEC ahead of the offering, Meister and Blau called on the REIT to stop the "dilutive, value-destructive equity offering and debt repurchase or face legal action." In a follow-up letter, the investors reiterated their proposal to buy CWH at $27 a share, which values the REIT at roughly $2.26 billion. Both Corvex and Related claim that CWH should be worth $40 a share and that mismanagement of the REIT has driven down its stock price. (The Am Law Daily reported earlier this year on a potential increase in REIT deals in 2013.)
Sullivan & Worcester banking and finance partner Alexander Notopoulos Jr. in Boston is handling the equity offering by CWH, which reportedly resulted in the sale of 30 million shares at $19 apiece. The firm has enjoyed a close relationship with the REIT.
Barry Portnoy, a former chairman of Sullivan & Worcester, is a managing trustee for CWH and chairman of Newton-based REIT Management & Research (RMR), which manages properties for CWH. Jennifer Clark, another former Sullivan & Worcester partner, serves as general counsel for CWH and chief legal officer for RMR. Vern Larkin, a former counsel at Skadden in Boston, serves as chief compliance officer and director of internal audit for RMR and CWH.
Skadden is advising CWH on its efforts to fend off the objections by Corvex and Related. Corporate partner Margaret Cohen in Boston and litigation partner Robert Saunders in Wilmington are leading a team from the firm working on the matter.
Skadden has done work for CWH before, advising the REIT last year on its spin-off of commercial properties on the Hawaiian island of Oahu through a $200 million initial public offering for its Select Income REIT. Cohen advised Newton-based Select Income on the listing, according to an SEC filing related to the IPO, which generated $3.015 million in legal fees and expenses. (Sullivan & Worcester acted as tax counsel to Select Income—one of the largest landowners in Hawaii—and Sidley Austin advised underwriters led by Bank of America/Merrill Lynch, Morgan Stanley, and Wells Fargo Securities.)
Corvex has more than $1 billion in assets under management, according to filings made by the New York–based hedge fund with the SEC. Malcolm Levine—the son of New York–based Cooley litigation partner and management committee member Alan Levine—is a senior managing director at Corvex. As for Related, the company is one of the largest real estate developers in Manhattan through its work on sites like Hudson Yards, a $15 billion deal inked three years ago that landed roles for four top firms. Glenn Goldstein, a former in-house lawyer at Related, serves as president of the company.
New York–based hedge fund Luxor Capital Group, which owns about 8 percent of CWH, has publicly expressed support for the position staked out by Related and Corvex in a letter sent Tuesday to the CWH board stating its opposition to any equity offering.
"You have now publicly heard that at least 18% of your shareholders do not support the offering, and we believe that the number opposing it is actually much higher," Luxor stated in the letter. "We implore you to heed the advice of the owners of [CWH] and cancel this unnecessary and highly dilutive offering and immediately form an independent committee."
Norris Nissim, formerly of Schulte Roth & Zabel, serves as Luxor’s chief legal and compliance officer.