Sam Zell is facing a new opponent 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.
Moody's Investors Service on Friday placed the ratings of the company 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 buy backs" if shareholders retained the board, it said.
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).
Moody's has given his other REIT, Equity LifeStyle Properties, a Ba3 rating, believing it is subject to substantial credit risk.
Also, S&P rates the two non-real estate companies Zell chairs — Anixter International and Covanta Holding — as both being slightly below investment grade.
Meanwhile, proxy advisory firms Institutional Shareholder Services and Glass Lewis have recommended replacing the CommonWealth board.
CommonWealth shares, which are up 24.4 percent over the past year, fell 0.3 percent on Friday to close at $27.58.
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