CommonWealth REIT (CWH) has been making the news lately. First it was due to a bad earning report earlier in the week, which sent the CWH down 10%. Then the next day it jumped over 40% because two activist investors running Corvex Management and Related Fund Management (Keith Meister who runs Corvex is an Icahn disciple) announced a nearly 10% ownership stake in CWH, and expressed their desires for a management dismissal.
At first the two investors offered to buy the company at $25 a share (it was trading in the $15 range before they announced a stake), while saying the shares could be trading much higher if management's interests were aligned with shareholders. Currently the managers' interest lies in making deals, not in boosting the stock price.
Yesterday, the pair of activist investors upped their offer to $27 if the company starts negotiations in the next 48 hours. Details in link above.
CWH closed today at $23.90 . It was trading in the $15 range since last August, until the news of the buyout offer, so it's not hard to imagine CWH going back down to around $15 if the offer is retracted. So there's three scenarios that could play out:
- CWH sells at $27 or higher.
- They refuse to sell and the stock drops significantly.
- They refuse to sell and the stock treads water, it neither goes up nor down because investors think management will get their act together.
The third scenario seems the least likely. Scenario 1 and 2 seem fairly equal, but given management's lack of interest in the shareholders I wouldn't be terribly surprised if they refused to sell.
Now two more funds, The Deleware County Employees Retirement Fund and Luxor Capital, are publicly announcing their distaste for management. Since Corvex and Related gave management 48 hours to start talks and with the addition of a lawsuit brought by The Deleware County Employees Retirement Fund, look to see more movement in the coming days and weeks.
CWH's assets are clearly undervalued, or no one would be interested in buying the company, but with current management in place the likelihood of unlocking value is diminished, on top of whatever value that exists will be diluted.
If management doesn't respond by tomorrow, it will be interesting to see what Corvex and Related do, and what the courts do, if anything. But it looks like management is pushing ahead with the secondary offering and debt repurchase, anyway.
Hopefully with several large shareholders protesting the secondary offering, and now the threat of multiple lawsuits management will give up its stranglehold on CWH, and give the owners what they deserve. The same management team at Commonwealth also has interests in GOV, HPT, SIR, so keep an eye on these stocks as well as they have similar fundamentals (good and bad) to CommonWealth REIT.
Additional disclosure: I have a March 16th straddle on CWH at $22.50.