October 25, 2021

Fair Game: CommonWealth Trustees, Guarding the Status Quo

But CommonWealth, with $7.8 billion in buildings from Hoboken to San Diego, is unlike most other real estate investment trusts in one crucial way: its structure creates a significant conflict of interest. What sets CommonWealth apart is that it employs an outside management company, known as REIT Management and Research, to run the company’s operations and acquire properties. Many REITs were set up this way in the 1980s because they were small, but external managers are an anomaly among today’s much larger REITs.

To make matters more interesting, the outside management company is run by Barry M. Portnoy, CommonWealth’s founder, and his son Adam. Both father and son, moreover, serve on CommonWealth’s five-member board.

REIT Management and Research is paid an advisory fee based on the size of CommonWealth’s assets, rather than on how the investments perform. This is a stark incentive to simply expand the company through acquisitions and, in fact, since March 2010 CommonWealth has issued 88 million new shares to acquire new properties. The number of new shares is almost triple the stock outstanding before the sales. Such issuance dilutes existing shareholders’ stake because it increases the number of investors that share in the company’s income and payouts.

The incentive structure also encourages the management company to pay top dollar for properties. As noted in a recent report from Green Street Advisors, a research firm specializing in REIT analysis, “Selling equity and buying assets, without management rigorously asking ‘At what price?,’ can bleed shareholder value over the long term.”

Sure enough, since 2005, CommonWealth has underperformed the index of commercial office building REITs. In 2012, CommonWealth’s shares fell 7 percent. It cut its dividend last fall.

But because the assets have increased, the management company run by the Portnoys has been raking it in, earning $118 million in advisory fees in the last three years.

THIS might not be a concern if CommonWealth’s outside managers owned a sizable investment in its shares, aligning themselves with the company’s owners. They do not; the management firm’s executives and trustees on the board own 0.33 percent of CommonWealth stock.

So, to recap, the founder of CommonWealth and his son run the company, manage the properties for a hefty fee and dominate the board — all while having little equity stake in the company.

These conflicts in CommonWealth’s structure and oversight make it “uninvestable,” according to Green Street Advisors.

Adam D. Portnoy, CommonWealth’s president, said in an interview that the company’s underperformance had nothing to do with its structure. Rather, he said, it was a result of its transition from a concentration in suburban office buildings to those in central business districts. “We’re trying to reposition the portfolio away from probably the worst performing sector — suburban office buildings,” he said. “It’s a painful process.”

If the conflicts at CommonWealth are so glaring, why don’t shareholders agitate for change? Some have tried, only to encounter an array of barriers that appear to be set up to keep the outside managers’ lucrative contract in place and the company under their control.

The list of entrenchment tactics is lengthy. First is the company’s costly antitakeover measure — also known as a poison pill — that kicks in when an outsider acquires 10 percent of CommonWealth’s shares. Then there are the board’s staggered terms, which make it harder for shareholders to oust a number of trustees at once.

Article source: http://www.nytimes.com/2013/05/05/business/commonwealth-trustees-guarding-the-status-quo.html?partner=rss&emc=rss

Icahn Drops Push to Unseat Clorox Board

Icahn, Clorox’s biggest shareholder, last month nominated himself, his son and nine other people for election to the board at the company’s next annual shareholder meeting.

That move came after Clorox directors twice rejected his earlier offers to buy the company.

“Several large shareholders may believe that now is not the best time to run that process, given the deteriorating conditions of the financial markets,” Icahn said in a regulatory filing on Friday.

Beyond that, he said, Clorox’s view is that Icahn’s offer of $80 per share “substantially undervalues” the company.

Nevertheless, Icahn said he continues to believe that a sale is the best way to maximize shareholder value.

Icahn kicked off his proxy fight at Clorox on Aug 19, the day after he lost a battle to get board seats at another target, prescription drug maker Forest Laboratories.

The corporate raider-turned-activist, who is known to take on battles at several companies at the same time, lately has been no stranger to disappointment.

On August 30 he dumped his stake in Lions Gate Entertainment Corp, giving up on a lengthy battle for control of the film studio and producer of the television hit “Mad Men.

Shares in Clorox fell 4.9 percent to $66 in extended trading on Friday.

(Reporting by Phil Wahba in New York and Lisa Baertlein in Los Angeles; Editing by Andre Grenon)

Article source: http://feeds.nytimes.com/click.phdo?i=aaf0835b010b238395b1d615ff35d378

DealBook: Cephalon Rejects Valeant’s $5.7 Billion Takeover Bid

8:49 p.m. | Updated

Cephalon on Tuesday rejected an unsolicited $5.7 billion takeover bid by Valeant Pharmaceuticals International, arguing that the offer was too low and opportunistic.

Cephalon, which had already rebuffed several private merger approaches over recent months by Valeant, criticized the latest offer as more of the same.

Under the terms of its publicly disclosed bid, Valeant would pay $73 a share in cash. Valeant, a maker of a wide variety of drugs, argued in part that Cephalon faced several challenges that would be hard to surmount on its own. Among these is the expiration next year of a patent for Provigil, a treatment for narcolepsy and some other sleep disorders.

But Cephalon argued that the Valeant offer was pegged to its 52-week stock-price low, and failed to account for future growth from its pipeline of drugs.

“This is all about shareholder value,” Kevin Buchi, Cephalon’s chief executive, said in a statement. “The Cephalon board of directors is committed to maximizing value for our shareholders, and we take this responsibility very seriously.”

But Cephalon faces another potential challenge: Beyond offering cash, Valeant also plans to submit a proposal to replace Cephalon’s board with its own chosen directors.

Once Valeant delivers its proposal, shareholders will have 60 days from that day to vote on the plan.

Valeant announced its slate of nominees to Cephalon’s board on Tuesday, saying that its so-called consent solicitation would allow Cephalon’s shareholders to decide if they wanted to pursue a deal.

If Valeant succeeds in replacing Cephalon’s board, its nominees could remove impediments to a potential deal, including a poison-pill provision. Valeant dangled the prospect of a higher price if it were allowed to more closely examine Cephalon’s books.

“We stand ready to quickly commence and close our transaction as proposed, unless Cephalon stockholders do not support our offer, in which case we will focus our attention on other opportunities to invest our capital,” J. Michael Pearson, Valeant’s chairman and chief executive, said in a statement. “While we are disappointed with the response from Cephalon’s board, we remain committed to our process.”

Shares in Cephalon have risen more than 33.6 percent since the takeover proposal was disclosed, closing on Tuesday at $77.37. That is above the offer, suggesting that investors believe that Valeant or another bidder will make a higher bid.

Shares in Valeant rose 1.9 percent on Tuesday, closing at $53.96. Its shares have also risen since the company announced its offer, having jumped more than 20 percent.

Cephalon is being advised by Deutsche Bank, Bank of America Merrill Lynch and the law firm Skadden, Arps, Slate, Meagher Flom.

Here is the list of Valeant’s nominees for Cephalon’s board:

  • Santo J. Costa, the former chief operating officer of Quintiles
  • Richard H. Koppes, the former general counsel and interim chief executive of Calpers
  • Lawrence N. Kugelman, the former chief executive of Coventry Health Care
  • Anders Lonner, the former chief executive of Meda
  • John H. McArthur, a former dean of the Harvard Business School
  • Thomas G. Plaskett, a director of Alcon and RadioShack
  • Blair H. Sheppard, the chairman and former chief executive of Duke Corporate Education and a former dean of Duke’s Fuqua School of Business

Article source: http://feeds.nytimes.com/click.phdo?i=9ab59b016c0f7c13f8bd583ddcedc6aa