Corvex And Related Reaffirm Proposal to Acquire All Outstanding Shares of Commonwealth Reit for $24.50/Share
Corvex Management LP and Related Fund Management, LLC, whose separately managed investment funds collectively own approximately 9.0% of the outstanding common shares of CommonWealth REIT (NYSE: CWH), released the following letter delivered today to the Board of Trustees of CWH:
Board of Trustees CommonWealth REIT Two Newton Place 255 Washington Street Newton, MA 02458-1634 March 28, 2013 Dear Members of the Board of Trustees: We appreciate the time taken by Messrs. Barry and Adam Portnoy to meet with us in Boston this past Tuesday (after our initial request on February 25, 2013). We hereby submit to the Board of Trustees a proposal to acquire up to 100% of the outstanding shares of CWH. We are prepared to offer the same economic terms reflected in our February 27, 2013 letter to you, as represented by a $7.3 billion enterprise value. Our current offer represents a price of $24.50 per share today, as compared to $27.00 per share on February 27, 2013, due to the mathematical impact of the highly dilutive equity offering you completed earlier this month. Our current offer represents a premium of approximately 55% to CWH's price per share on February 25, 2013, the day before we publicly announced our ownership stake in CWH. Our offer is subject to further downward adjustment if you move forward with a sale of all or a portion of CWH's controlling stake in Select Income REIT. We continue to believe that CWH is significantly undervalued due to its obsolete externally advised management structure and flawed corporate governance. We firmly believe that taking the proper steps, including but not limited to termination of the management agreement with RMR, adoption of corporate governance best practices, cessation of related party transactions, and shareholder friendly capital allocation, will create significant value for all CWH shareholders. However, in light of your recent actions, we have unfortunately concluded that you as a Board are not prepared to independently undertake or evaluate any such value enhancing steps. In light of the foregoing, we are left with three options: (1) Corvex and Related acquire CWH in a negotiated transaction (in which we will seek to utilize a structure that will allow existing fellow shareholders to participate if they so choose), (2) CWH is sold to a third party willing to pay more than Corvex and Related, or (3) shareholders remove the current Board through a 2/3 vote in the near-term (we then anticipate that a new Board elected by its shareholders would run the business with an internal management team such that CWH trades at NAV, or sell CWH to someone at NAV). Rest assured, we are fully committed to pursuing the third alternative in the event you choose not to pursue options (1) or (2), and believe there is a clear path for us to remove all of you as trustees in the near term. It is only a matter of time before all shareholders have an opportunity to exercise their rights as owners of CWH and we are prepared to spend as much time as necessary to achieve that end. We are prepared to meet immediately with you and your advisors in order to answer any questions about our acquisition offer and move expeditiously toward a definitive transaction agreement. To be clear, any such agreement would not have any diligence or financing condition, and we believe that if you are prepared to enter into good faith negotiations with us we could negotiate and announce a transaction in less than 3 weeks (note that we would be prepared to include any appropriate “go-shop” period in any transaction agreement). We and our financial advisor, Deutsche Bank Securities Inc., are ready, willing and able to proceed with such negotiations immediately. Further, we are prepared to discuss structural alternatives for a transaction that would allow interested shareholders to choose to participate in the upside potential of CWH when operated by a qualified management team after appropriate transition services. Once again we want to take this opportunity to demand that you put in place a special committee advised by independent advisors, and that you refrain from taking any steps to destroy shareholder value, including selling CWH's controlling stake in Select Income REIT (SIR). As we stated in our letter to the Board dated March 25, 2013, we do not believe CWH should sell its 56% controlling interest in SIR in an underwritten offering, which we anticipate would be completed at a discount to market price. Any sale of shares constituting a control position in SIR should obviously reflect a control premium, not a discount. Furthermore, any such sale must only be completed following a thorough and independent exploration of all available options to seek the highest price available to CWH for the sale of its controlling SIR stake – much like any other process for the sale of a controlling stake in a public company would be completed by a responsible board mindful of its fiduciary duties. Further, be aware that we would be prepared to buy such controlling stake in SIR at a premium to market value if the current SIR trustees resign and SIR's management agreement with RMR is terminated. While the path of selling SIR in an underwritten offering serves only RMR, which would maintain control of SIR and continue to extract management fees from the business, it is clearly not a value maximizing outcome for CWH shareholders. We expect a prompt response to our offer. Sincerely, Keith Meister Corvex Management LP 712 Fifth Avenue, 23rd Floor New York, New York 10019
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