Why CommonWealth REIT Shares Skyrocketed
Feb 26th 2013 4:16PM
Updated Feb 26th 2013 4:35PM
Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of CommonWealth REIT , an office-based real estate investment trust that was down by as much as 11% yesterday, reversed course and exploded higher by as much as 41% after two of its largest investors offered their take on CommonWealth's valuation in an open letter.
So what: Before the opening bell, Corvex Management and Related Fund Management announced that they've collectively acquired a 9.8% stake in CommonWealth REIT. The release notes the opinion of these two funds that CommonWealth shares are greatly undervalued and could hit $50 (a 215% gain from yesterday's closing price) within two years if remedies -- including the alignment of management's compensation with those of shareholders -- were enacted to enhance shareholder value over the long term. Both funds also demanded that CommonWealth retract its 27 million share offering to pay down some of its debt. But, most importantly, at the end of Corvex and Related's open letter, it states the willingness of both parties to "acquire all outstanding shares [of CommonWealth REIT] at a significant premium to current market value" assuming the board is unwilling to cooperate with their demands.
Now what: It looks as if we're about to have a brouhaha between CommonWealth's board of directors and Corvex/Related. Without anything more than a letter, I'd need to see more evidence of how Corvex/Related plan to derive the funding needed to purchase the remaining shares of CommonWealth -- assuming it could even get around the company's poison pill currently in place. This is watchlist worthy, but it's still far too early in the game to tell which way CommonWealth will head next.
Craving more input? Start by adding CommonWealth REIT to your free and personalized Watchlist so you can keep up on the latest news with the company.
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