Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Should You Jump on Soaring CommonWealth REIT (CWH)?

David Einhorn. Carl Icahn. Bill Ackman… Corvex and Related?

So far, 2013 has been “The Year of the Activist.” Two months into the year, shareholder activists have dominated the financial media with everything from billionaires dueling over a nutrition company to lawsuits being filed against Apple Inc. (NASDAQ:AAPL) for hoarding too much cash. Today, Corvex Management and Related Fund Management burst onto the scene today after aggressively attacking the Board of Trustees at CommonWealth REIT (NYSE:CWH) and the company’s supposed value-destroying actions.

CommonWealth REIT (NYSE:CWH)

As fellow Fool Sean Williams pointed out on Monday, shares of CommonWealth REIT took a beating after the company announced its plans to access the capital markets and issue up to 31 million shares of stock. Shareholders are rarely pleased if their holdings are set to be diluted, and in this case, CommonWealth REIT (NYSE:CWH) was planning to throw salt into shareholder wounds by issuing stock with shares trading at a 43% discount to book value. In a more ideal scenario, a company would aim to issue additional equity when management feels its share price is at a premium level.

After claiming the proposed action spoke “to the incredible disconnect between the goals of CWH shareholders and the Board,” Corvex and Related asserted that its independent assessment of CommonWealth REIT’s properties and assets estimated the stock to be worth $40 per share, a considerable premium compared to Monday’s closing price of $15.85.

Hope you held onto your shares…
As if publicly valuing the shares of the company 2.5 times its current price wasn’t enough good news for shareholders who held on to their stock through Monday’s slide, Corvex and Related, which currently own almost 10% of the common stock, announced they were prepared to acquire all of the outstanding shares at a “significant premium” if management did not reverse course.

How could investors not be excited here: They’re being told that their stock is undervalued and that there’s an offer to buy shares at a “significant premium.” Shares of CommonWealth REIT closed up over 50% this afternoon.

Looking ahead
If you are keeping track of the stats in this story, today’s closing price was $24.40 per share. The two funds were reportedly willing to pay $25 per share and potentially “meaningfully increase” that offer. The two firms’ independent property and asset analysis valued the company at $40 per share. Therefore, despite today’s soaring price, is there still money to be made in this suddenly hot-topic REIT?

Typically, after institutional investors or large shareholders publically declare their intention to either buy or short a company’s stock, the success or failure of the share price is likely to become a binary event. Here at The Motley Fool, we advocate investing in companies with superior competitive advantages, a proven management team, or beneficial long-term trends. While it may be an interesting story to follow and end up being an example of powerful shareholder activism, without any meaningful insight to the intentions of these institutional players, investors may be best served by watching from the sidelines and allocating their capital to businesses they view as long-term industry leaders.

The article Should You Jump on Soaring CommonWealth REIT? originally appeared on and is written by David Hanson.

David Hanson has no position in any stocks mentioned, and neither does The Motley Fool.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Biotech Stock Alert - 20% Guaranteed Return in One Year

Hedge Funds and Insiders Are Piling Into

One of 2015's best hedge funds and two insiders snapped up shares of this medical device stock recently. We believe its transformative and disruptive device will storm the $3+ billion market and help it achieve 500%-1000% gains in 3 years.

Get your FREE REPORT and the details of our 20% return guarantee today.

Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.
Loading Comments...

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 102% in 3 years!! Wondering How?

Download a complete edition of our newsletter for free!