Is this the endgame for the battle to control
It is now a year since two investment firms,
CommonWealth has been controlled by
Perhaps because of their lucrative management fees, the Portnoys didn't take kindly to the Corvex and Related position and proposals for change. The Portnoys initially spearheaded board maneuvers to adopt provisions to stop the Corvex and Related bid. This included an attempt by CommonWealth's board to opt into a
In addition, CommonWealth initiated a controversial share issuance, which Related and Corvex called dilutive. The company issued 31 million shares to buy back debt. To top this all off, when Related and Corvex sued over these actions, the Portnoys enforced an arbitration provision they had arranged to be placed in CommonWealth's bylaws that forced Corvex and Related to arbitrate their objections to these provisions privately.
In making these steps, the Portnoys seemed to care little about shareholder interests and more about their own concerns. This appeared to be the case because in an initial attempt to unseat the Portnoys and the other CommonWealth directors, Corvex and Related were supported by over 70 percent of CommonWealth's shares.
The Portnoys tried to initially ignore this, but they appear to have found religion in the past few months.
The impetus appeared to occur in October, when CommonWealth largely lost its arbitration battle. The arbitration panel held that CommonWealth's adoption of the bylaw requiring ownership for three years was illegal. The panel also held that CommonWealth's directors could be removed without cause.
Deal Professor The arbitrators invalidated Corvex and Related's previous consent solicitation to remove the board, but the panel set forth a schedule for a new consent solicitation that presumably put the dispute on course for resolution.
Related and Corvex could now freely file a new consent solicitation to remove the
But this did not end the matter. If directors are removed, they are not replaced immediately. Instead, an election must be held, according to CommonWealth's organization documents. The arbitration panel tried to prevent CommonWealth from skirting this requirement by specifically holding that if the Corvex and Related succeeded in removing the CommonWealth directors, CommonWealth must promptly give notice of a special meeting to elect directors and hold that meeting in 10 to 60 days from the date of the notice.
Since the decision, the Portnoys have been trying to show their good governance chops. CommonWealth has added two new independent directors and invited
According to CommonWealth, these changes "demonstrate the board's commitment to enhance governance and respond directly to our shareholders, while allowing the company's shareholders to continue receiving high quality management services at or below average costs."
But this is still not enough for Related and Corvex, which want a regime change as the ultimate goal to enhance shareholder value.
Related and Corvex have set the record date for the consent solicitation. Shareholders who own CommonWealth shares on this date are eligible to submit consents for removal. With the shareholder base for solicitation set, Corvex and Related are racing to get enough consents from shareholders to remove the CommonWealth directors.
Corvex and Related have until
CommonWealth, meanwhile, is busy soliciting shareholders to withhold consent or those who have consented to revoke their consent. The company is defending itself by both claiming that it is reformed and come to love good governance measures while at the same time accusing Related and Corvex of having a "have a poor record of managing public companies."
Related and Corvex have brought in the famed investor
The requirement to obtain two-thirds of CommonWealth's shares is a high threshold, but Corvex and Related have succeeded before. Even if they lose, they will have an easier bite at the apple to unseat directors at the next CommonWealth election if they choose to stick around.
The real question is, if Corvex and Related win, will the Portnoys go quietly?
I asked the company that question, and a representative replied that "CommonWealth will comply with the requirements of the Declaration of Trust and the Panel order," meaning they would comply with the terms to hold the meeting and otherwise. This would probably mean calling a meeting where new directors can be replaced. These would presumably be Corvex and Related nominees.
Lawyers are clever though, and it remains to be seen if they will wiggle out. Even if they don't, they still have a management contract with CommonWealth that would have to be terminated. The costs and ability to do this are not yet known. The vote on
Most Popular Stories
- Chinese e-Commerce Giant Alibaba Gears for IPO in U.S.
- Apple, HP, Intel May Take a Hit from Slowdown in Smartphone Sales Growth
- FDIC Files Lawsuit on Behalf of Banks Allegedly Hurt by Libor Scandal
- Motley Crue's Nikki Sixx Marries Model Courtney Bingham
- Some California Cities Seeking Water Independence
- Will Missing Malaysian Jet Prompt Aviation System Change?
- Keurig Adds Peet's coffee, Alters Starbucks deal
- Quiznos Files for Chapter 11
- Obama Seeks to Stay Neutral in CIA-Senate Conflict
- President Obama Touts Overhaul of Overtime Rules