It seems that market is saying there is a reasonable chance that buyout will eventually take place. However I was wondering with the corporate rules that RMR has in place (staggered elections and requriements for a investor to have ? 3 years of holding) what do you see as the earliest time that board could be removed or at least a majority could vote differently. Even if new investors (acitvists) each get 9.8 % how can they change the situation ?
So, my speculation last week that institutional buying (sustained buying in 100-share lots) was the cause for keeping the stock price inexplicably afloat was correct. Bloomberg reports today that "Keith Meister’s Corvex and Related, led by Chief Executive Officer Jeff Blau, now own 10.1 million shares, or 8.5 percent of the Newton, Massachusetts-based REIT, according to a filing with the U.S. Securities and Exchange Commission today." I'm a little perplexed: I haven't read the filing, but I thought that C&R already had over 9% at the time they filed their 13D one or two weeks ago when they tendered their demand to the Board to halt the secondary. Maybe it's a typo and meant to say that Corvex alone had acquired up to 8.5%.
Here are a few observations to mull over. 1) The recent stock offering was dilutional (based one dilusional estimates of a $40/sh portfolio value) and was a poison pill meant to make the takeover less attractive. 2) If RMRs motives were to improve shareholder value it would have sold the shares of SIR and Gov instead of the new stock offering. 3) No doubt the Sir and Gov shares will be liquidated quickly in the takeover group is sucessful because it is a quick source of money available to the takeover group. 4) The price of the shares of Sir and Gov have taken a huge jump recently. That certainly makes the deal more attractive and suggests that maybe the takeover group is pumping up the share price of Sir and Gov because it is in their best interests to have a high price for both stocks. The higher the sir and gov price the less money the takeover group has to come up with.
Pertaining to your point 2, they raised about $627 million from the dilutive share offering, purportedly to pay off debt. Using the prices of GOV and SIR on 2/22, the day before the offering was announced, the market value of the GOV and SIR shares was in excess of $800 million. The Portnoys always place their own interests above the interests of the common shareholders.
clynescar, I believe activists can via "written consent" circumvent normal procedure and put forth a vote on the board. If this vote should achieve a 2/3rds majority then the board and thus RMR will be out. This is the activists only hope at this point IMO. As the share dilution of about 40% is a done deal, I expect that the activists will come back with a MUCH lower buyout offer should they table one (likely lower than the $19 they spoke of yesterday in the court proceeding). More likely, they will just move through written consent to try to oust the board and RMR. I would not put too much faith in the current stock price hanging in there, as it is today. The shares issued settle at the close today, and tomorrow will be more telling. Further, I am sure that the underwriters have agreed to support (manipulate) the stock price in the short run, as they do not want to get sued should the stock price decline precipitously from the $19 level they did the share issuance at. That said, I do believe that the post dilution book value/NAV is about $24, and the market should put an appropriate discount on that value due to the board and RMR conflicts. That discount may be narrower than the previous more than 50% of book value since the activists are involved (trapped!) at this point, but I don't know how much of a discount may be warranted given their presence. Let's go with their previous offer of $27, which was a 33% discount from what they felt the real estate value was worth per share of $40 pre dilutive share issuance. On that basis, given a 40% reduction to $40 due to the share dilution, that brings us to a current $24 real estate value, and deducting a 33% discount for that (which aligns with the activists previous discount to fair value offer to buy CWH), that would bring us to a prospective takeover trading price of a bit over $16. (I will continue this on my next post due to reaching a limit of yahoo wiritn space on this post).
(continued here) And recall that given the uncertainty of a buyout offer being tabled (and a more likely written consent effort forthcoming), CWH shares will trade at a discount to the potential $16 buyout price. Is that a pre dilution 50%+ discount? or something less drastic, like a 25% discount? Either way, I think THAT is what you will need to grapple with deciding between. As for me, I will wait to see what Corvex et al decide to do, and I will wait for the discount to emerge again. If I think the disount is wide enough, and the probability that Corvex et al will successfully move for written consent procedure to oust the board, then I MAY buy shares as a spec trade (I think they will, and have a very good chance of success, as they really have no choice other than selling today and dissappearing with their profit--but then this damages their credibility in future such activist situations by giving other corporate managments a "CWH roadmap" to follow to keep the activists at bay-- or digging in for a fight via written consent to oust the board and realize as higher value of $24 + (they indicated that there was an upside a few years down the road to $50 from their previous real estate value estimate of $40--pre dilution, so they feel the company can operate better and achieve a higher value in a few years). That, in a nutshell, is my synopsis. Anyone else care to discuss this?
The first thing we need to see is where the new shares have ended up. If they in fact were quickly traded (and why not when the buyers had a $6 immediate profit) and are now dispersed among many institutional and private buyers, then Corvex, Related and Luxor might be able to rally shareholders to achieve the 2/3rds vote necessary.
The Portnoys have put obstacles in place, but they are not impenetrable.
Frankly, after following HRP/CWH for many years I honestly don't think there are any shareholders commited to the Portnoys. Given the opportunity and a price all of us would gladly sell the REIT or send the Portnoys out the door. But the Portnoys are not stupid. There is a reason they control the management company but have little interest in the REITs themselves. So I think they can read the tea leaves and recognize that insurgents will displace them.
By the way, does anyone know what the relationship is between the "independent" members of the Board? Morea is a senior executive at RBC, which comanaged the tender (debt) offer. You wonder how independent he can be? Lamkin is an investment banker, while Zeytoonjian looks like a northeastern businessman. Add Morea's vote to the inhouse board members and you have a majority.
Honestly, why would the market be thinking a buyout is still on the table (notwithstanding that Stifel Nicolaus said that CWH is "in play")? Whoever thinks this is not reading the news. Based on the outcomes of yesterday's legal proceedings and the subsequent analysis, in addition to the Board's obvious obduracy, a buyout, or a Board replacement, would be very difficult to make happen in the short term. Unless the Board caves, we are guaranteed four to twelve months of litigation with no other obvious shareholder returns in the meantime. Other than the possibility that there is activist shareholder accumulation going on, the current price action is baffling. I have to remind myself that the market can remain irrational for longer than I can remain solvent.
esoxlucios, I think it will take as short as a few months to put the wriiten consent vote forth. I wish I could point you to exactly what i read which indicated that, but I have read so much I cannot recall excatly where it was!!! Sorry, but I feel strongly that under normal circumstances (and the Porknoys may be able to drag it out some) bringing such a vote forth should take just a few months. An intersting speculation is whether the Porknoys have a deal worked out with the underwriterswho did the share offering wherein the Porkies have an option at $19 to buy those shares from the underwriters. The rationale would be that the Porknoys are protected in either scenario--if the activists succeed in unlocking fiture value above $19 the Porknoys make out, AND in the mean time, over the next few months those shares sit with the underwriters who would vote them in favor of the Porknoys. Just something to chew on. Wall Street is a "den of thieves", so one never knows what happens in the back alleys!