NEWTON, Mass. (AP) — Two activist shareholders have filed a lawsuit against CommonWealth REIT after the company announced that that it was moving forward with its planned stock offering and debt repurchase despite their objections.
Corvex Management LP and Related Fund Management LLC, who own a combined stake of almost 10 percent in the real estate investment trust, filed a lawsuit in Maryland state court alleging that CommonWealth breached its fiduciary duties to shareholders. The suit also names the CommonWealth board and its external manager, REIT Management Research LLC.
News of the lawsuit comes one day after Corvex and Related Fund said that CommonWealth's stock was undervalued and that they were willing to buy the rest of the company.
On Monday, CommonWealth announced that it started a tender offer to buy up to $450 million of some senior notes due in 2014, 2015 and 2016. It also announced a public offering of up to approximately 31.1 million shares, with the proceeds being used to buy back the notes.
Corvex and Related Fund said Tuesday that they felt CommonWealth's portfolio of real estate assets was undervalued. They said that if they didn't receive a response, they would look to have CommonWealth's board removed and replace them with five independent trustees.
The companies also said that they would be ready to buy all of CommonWealth's outstanding stock at a "significant premium" to its current market value.
But CommonWealth REIT said Wednesday that it decided to move forward with the planned stock offering and debt repurchase after its board considered Corvex and Related Fund's position.
Corvex and Related Fund said that they've asked CommonWealth's board to meet with them to discuss their plan to maximize shareholder value, but that the company has refused. They own a combined stake of about 9.8 percent of CommonWealth, which invests in office and industrial buildings and leased industrial land in the United States.
Also on Wednesday, Standard & Poor's Ratings Services said that it was putting CommonWealth on watch for a possible downgrade.
Shares of CommonWealth tumbled $1.56, or 6.4 percent, to $22.84 in afternoon trading Wednesday after briefly hitting a 52-week high of $24.55 on Tuesday.