Indaba Capital sends letter to Equity Commonwealth board urging liquidation

Indaba Capital Management, which is a top 10 shareholder of Equity Commonwealth, issued the following open letter to the company’s board of trustees. “As you know from our prior communications, Indaba is a significant shareholder of EQC, with ownership of approximately 3% of the Company’s outstanding common shares. We are a value-focused investment firm with a long-term track record of avoiding public activism in favor of maintaining productive, private relationships with corporate leadership teams. In rare instances, we are forced to publicize our concerns and suggestions pertaining to a portfolio company. We do so only after private engagement has proven unproductive and when our thorough analysis indicates that shareholder value is at risk of being permanently impaired. Unfortunately, EQC is now one of these rare instances. After following EQC for many years, we can state with conviction that the Company is severely undervalued due to its leadership’s actions and decisions. EQC’s equity market value should far exceed its current level of approximately $2 billion given the Company has nearly $2.2 billion of cash on hand, processes underway to sell three of its remaining four properties, and recent public disclosure about a prospective liquidation. Instead, EQC’s stock trades at a paltry premium to cash, net of all liabilities and windup costs, attributing negligible value to the Company’s remaining assets. We believe EQC’s valuation reflects investor fear about the Company exploring a large “transformative” acquisition instead of exclusively focusing on the orderly, safe liquidation that a growing number of shareholders appear to want.1 Moreover, we maintain that the Board’s arbitrary end-of-year deadline for deciding between the two aforementioned paths incentivizes leadership to recklessly allocate capital to a risky transaction. The Board’s decision to set this timeline seems to reflect a pattern of poor corporate governance… It is not too late for the Board to prioritize the best interests of shareholders by announcing it (i) has stopped assessing potential acquisitions and (ii) will solicit formal approval from shareholders on whether to liquidate the Company following many years of underperformance. We welcome the opportunity to have a productive, private dialogue should you desire to reengage and resume our interactions with an open mind. Our preference is to collaborate with you on a value-enhancing outcome, although we are prepared to use the tools at our disposal to publicly oppose anti-shareholder actions.”