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CommonWealth REIT Drama Might End Next Week, Hedge Funds Paying Attention

CommonWealth REIT drama: Amid the ongoing conflict between Corvex Management, Related Fund Management and the board of trustees of CommonWealth REIT (NYSE:CWH), the latter is taking some actions. Last week, CommonWealth REIT disclosed it was restructuring management within Reit Management & Research (RMR) and adding some government enhancements.

Earlier in August, Corvex Management and Related Fund Management, who own an aggregate position of almost 10% of CommonWealth REIT, sent a letter to the company according to which, “the arbitration panel concluded that bylaw provisions that sought to impose a minimum requirement of three years and three percent holdings for shareholders to request a record date for a consent solicitation are invalid as a matter of law.” The hearing that should take place on Monday will prove the validity of Corvex and Related’s solicitation, according to which the shareholders of more than 70% of CommonWealth’s stock voted to remove the board of the company.

“We are gratified by the decision and look forward to October’s evidentiary hearing and an expeditious and favorable resolution that will enable shareholders to regain control of CommonWealth by year-end,” Keith Meister of Corvex and Jeff T. Blau of Related said in a statement.

Last week, CommonWealth announced plans to adopt some measures, such as increasing the number of the members of the Board and raising the percentage of independent trustees to 75%. Also, the REIT’s board of trustees decided to speed up the expiration of the shareholder rights plan, or “the poison pill,” from its current expiration date, October 17, to a date after the resolution of the disputes between Corvex and Related.

“Among the various claims asserted by Corvex/Related in the pending arbitration proceedings were claims for money damages against CWH’s Trustees for breaches of fiduciary duty by employing RMR. After the expert reports were exchanged which evaluated the quality and costs of RMR’s historical services to CWH, and at the request of Corvex/Related, the Arbitration Panel ordered that these claims be dismissed with prejudice,” CommonWealth REIT also said in a statement.

Corvex and Related hold together almost 11.4 million shares of CommonWealth REIT. The REIT has been one of the most popular small-cap picks among hedge funds. Richard Perry’s Perry Capital also has a significant position, which contains 7.1 million shares.

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Disclosure: none

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