In the dispute between investors and CommonWealth REIT (CWH) over whether to oust its board, an arbitration panel said that attempts by shareholder to remove trustees were not valid but that a new vote could go forward. Related Cos. and Corvex Management LP, both CommonWealth shareholders, have been trying to get the board of trustees removed because they believe there was mismanagement and conflicts of interest.
They blamed this in part on CommonWealth President Adam Portnoy and his dad (and company founder) Barry owning external management firm REIT Management and Research LLC. The two of them are also on REIT’s board.
Corvex and Related claim that they were able to get support from holders that owned over 70% of the shares to get the trustees taken out. However, CommonWealth not only denies the conflict of interest claims but also contends that per its bylaws the vote was not valid.
Issuing its ruling, the arbitration panel said that Commonwealth’s bylaws set up procedural hurdles that create a “wall” against any consent solicitation. And while there is a rule that says shareholders need to own a minimum of 3% of the stock for at least three years before they can try to remove the trustees, arbitrators said that the rule wasn’t valid and also, the consent solicitation to remove the trustees was not executed properly and could not be validated. That said, the panel decided that Related and Corvex are allowed to begin a new effort under panel-established guidelines.
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