Zell faces CommonWealth fight questions

Financial Times March 13, 2014 (excerpt)

Sam Zell is facing questions over his motivation for joining an activist campaign to unseat the board of CommonWealth real estate investment trust, as one of the property sector’s most-watched shareholder battles becomes more vicious....

Mr Zell is fronting an attempt by Corvex Management and Related Fund Management to oust Mr Portnoy and the rest of the CommonWealth board....

A source close to CommonWealth said it would ask the Securities and Exchange Commission to investigate if Mr Zell broke its rules by not declaring a financial interest when joining the Corvex/Related slate.

“We are concerned that Zell is joining the Related/Corvex hostile takeover effort so he may influence these lease negotiations to the benefit of his company and the detriment of Select Income shareholders, including CommonWealth,” Mr Portnoy says, in a statement seen by the Financial Times.

CommonWealth owns a $6.8bn portfolio of office properties across the US and Australia and also controls 44 per cent of Select Income.

Mr Zell controls 33 per cent of Par Petroleum, an oil and gas company operating in Hawaii, which is demanding a decrease in lease payments to Select Income that currently total $5.2m annually. The dispute is due to go to arbitration next month.

Mr Zell has promised to buy at least $50m of CommonWealth shares if he becomes a trustee, dwarfing any potential savings in the Par Petroleum dispute. He angrily dismissed the questions over his motives....

The billionaire tycoon should have revealed that one of his investee companies is in a dispute in Hawaii over lease payments with Select Income Reit, a property company part-owned by CommonWealth, according to Adam Portnoy, CommonWealth’s president.

Jeff Blau, Related chief executive, hinted at the dispute in an interview with Bloomberg Television last month. When asked how Mr Zell came to be involved, he said: “Sam called us up and said – actually I think he wound up in a dispute with the Portnoys in a transaction or some landholdings they have in Hawaii.”

Corvex, led by former Carl Icahn deputy Keith Meister, targeted CommonWealth a year ago, claiming that it paid excessive fees to the Portnoy family’s property management vehicle. 

(Icahn didn't expect Hawaii lawyers overcharging for land management work?  How embarrassing for him.  He better hope none of the litigation is in Hawaii State courts.)

Corvex and Related have already won the backing of ISS, the powerful shareholder advisory group, based on what it said was “the dismal relative and absolute shareholder returns the company eked out before the dissidents’ arrival, to the dissidents’ central and compelling argument that this underperformance results from a misaligned external management structure this board nonetheless continues to support.”

read ... The Financial Times

News Release: CommonWealth REIT Comments on Newly Discovered and Previously Undisclosed Sam Zell Conflict of Interest