Sam Zell is facing resistance in his activist battle to become chairman of CommonWealth REIT, an owner of $6.6 billion of office buildings in 31 states.
This is Zell’s first known activist fight, and shareholders are presently casting their votes.
Hedge funds Corvex Management and Related Fund Management, working with Zell, need to collect two-thirds of the votes in their favor by March 20 to force the removal of all of the CommonWealth board.
If they succeed, there then will be a board election in which Zell would run for chairman.
CommonWealth said Monday all its board would stand for election at the June 13 annual meeting unless shareholders voted otherwise by March 20. The deadline for nominating directors for the annual meeting is March 24.
CommonWealth is taking the position that shareholders should make their voices heard at the annual meeting instead of voting now for the board to be replaced.
Moody’s Investors Service on Friday placed the ratings of the company, whose properties include Waterfront Corporate Center One, in Hoboken, NJ, on review for possible downgrade because of the potential “for increased leverage, secured debt, and/or core asset sales” if the board is replaced.
Also, Moody’s, which now rates CommonWealth debt at at Baa3 (moderate credit risk), would consider “the potential for increased shareholder-friendly activities, such as debt-funded acquisitions or share buybacks” if shareholders retained the board, it said.
CommonWealth used the Moody’s announcement to press its case against Zell’s team, saying the review for a possible downgrade shows there are “significant risks” with the 72-year-old’s proxy fight.
Zell believes Moody’s analysis is wrong and claims if shareholders look at the companies he runs they would see he does not put his companies at undue risk, a source close to the activist said.
Zell is chair of real-estate investment trust Equity Residential, which has a Standard & Poor’s BBB+ stable rating (above investment grade).
Meanwhile, proxy advisory firms Institutional Shareholder Services and Glass Lewis have recommended replacing the CommonWealth board.
CommonWealth shares, which are up 22.9 percent over the past year, fell 1.2 percent on Monday to close at $27.26.