The sale of more than 34 million shares by Newton-based CommonWealth REIT for $627 million to what some have called "cherry-picked" investors has closed, despite objections from shareholders.
Investor Keith Meister and his Related Cos., along with the Delaware County Employees Retirement Fund, both filed separately for temporary restraining orders to stop the firm’s equity offering from closing. But U.S. District Judge Denise Casper denied the orders at a hearing yesterday.
CommonWealth, a real estate investment trust, owns 54 million square feet of office space throughout the U.S. and elsewhere, totaling about $7.3 billion. Together, Related and Corvex Management, another of Meister’s firms, own 9.8 percent of CommonWealth. The firms offered to acquire CommonWealth for $27 a share before the stock offering, the firm stated in court documents.
The firm was co-founded by Barry Portnoy, now a managing trustee of the company. His son, Adam, also a managing trustee, was named president of CommonWealth in 2011. The decision to sell the shares to "friendly investors" for a far lower price was an attempt by the firm’s management to prevent change in the company and keep the Portnoys and other trustees in power, said Nicholas Chimicles, an attorney for the Delaware retirement fund.
The sale of the shares, slated to close tomorrow, will put that 30 percent of the overall equity of CommonWealth in the hands of investors loyal to the Portnoys, essentially preventing change in the company in perpetuity since stockholder action requires a two-thirds vote, Chimicles said.
"These defendants failed to notify prospective investors of up to 30 million shares of stock" for sale, Chimicles said. "In our view, the defendants have lost all their credibility."
Accusations of cherry-picking, however, are not true, since underwriters, and not CommonWealth, find the buyers, said Robert Saunders, a lawyer for CommonWealth. He also said there would be negative financial consequences and "a chain of breaches" if the sale were blocked.
