William Lyon Homes (NYSE: WLH) is exploring the option of going private for the second time since 2006, a process that could result in a strategic partner or outright buyer as a remedy to a stock price that company executives say is well below where it should be.
The Newport Beach-based homebuilder has granted Executive Chairman Bill H. Lyon the ability to seek potential investors in a move that could lead to a “possible business combination,” according to a regulatory filing early this month.
During a May conference call following the company’s first-quarter earnings release, Lyon, whose family controls 17.5% of the company’s Class A stock—valued at about $140 million as of last week—indicated that an underperforming stock was behind the move.
“From the family’s perspective, I would say we’ve been pretty disappointed in the way the market has valued the company at a discount to both book and tangible book values for the last several quarters, especially in light of some strong operating results and a record year last year,” said Lyon, whose namesake companies have built more than 100,000 homes in various iterations over the past 65 years.
He’s the son of the builder’s founder and Chairman Emeritus, Gen. William Lyon.
Despite a pickup this month, shares of William Lyon Homes are off about 30% from its 52-week high, reached last May. The company is valued at about $740 million.
In addition to 7.1 million Class A shares, the Lyon family owns another 4.8 million Class B shares that are convertible to Class A shares, regulatory filings indicate. Class B shareholders get five votes for each share they own, giving the family control over most voting matters.
A waiver granted at the start of the month allows the Lyon family the ability “to have the optionality to explore alternatives consistent with our long-term investment goals,” Bill Lyon said.
He added that while potential partners and investors have approached him over the years, he’s not in active discussions for a sale or move to go private.
“There’s nothing imminent,” he said. “From time to time, third-party financing sources or potential partners have inquired whether I might be interested.”
It wouldn’t be the first time the family—whose combined wealth the Business Journal estimates at around $1 billion—has looked to go private.
The company initially went public in the early 1990s before the Lyon family took it private in 2006, in a protracted affair that ultimately valued the builder at about $950 million.
That year-long takeover deal—which cost the family close to $275 million—concluded just prior to the onset of the last housing crash.
The builder spent much of the Great Recession getting its financials in shape, reemerging as a public company in 2013 through an initial public offering that raised about $217 million.
Shares are off about 20% from its IPO price of $25.
Company officials not tied to the family said they support the latest moves by the Lyons.
The company’s board “felt that granting this waiver provides Bill and his family with the flexibility to engage with other potential co-investors and potentially make a proposal back to our board that may be in the best interest of the company and all of its stockholders,” Chief Executive Matthew Zaist said.
“That’s how we’re viewing it from the company’s perspective.”
Mood, Stock on Upswing
The Newport Beach-based builder’s stock, like those of area firms like Irvine’s TRI Pointe Group Inc. (NYSE: TPH) and Aliso Viejo-based New Home Co. (NYSE: NWHM) was hit hard in the tail end of last year amid declining national sales trends and rising interest rates.
It’s now in an upswing. Shares are up 67% since the beginning of the year to $19.22 and a $726.6 million market cap.
The company’s announcement to grant its chairman the ability to seek out potential partners came the same week it reported better-than-expected first-quarter earnings.
First-quarter revenues of $453.8 million was up 22% from the year prior and beat expectations by about $45 million.
Lyon said during the conference call that the market “has demonstrated signs of recovery from the market pause that occurred in the back half of 2018,” bolstered by lower interest rates and stronger economic conditions.
The company delivered 949 homes during the first three months of the year, up 28%, at an average sales price of $478,200, down 5%.
“Heading into this year, our operating teams made certain pricing adjustments, as well as used targeted incentives to find the right balance to capitalize on the more favorable market conditions,” Lyon said.
Its 536-unit Novel Park project at Irvine’s Great Park Neighborhoods is in pre-sales mode, and will feature its share of lower-priced homes. It’s the largest new home community opening in Orange County this year.
“We remain extremely excited” about Novel Park, Zaist said. The builder paid about $166 million for the 33 acres of land that will hold that project.
