Shares of William Lyon Homes Inc., which took off amid a buyout offer by its chief executive and founder, have kept climbing long after the bid flopped.
Last week, shares of the Newport Beach-based homebuilder were up nearly 140% for the year, the biggest gain for any major Orange County public company.
The stock has been climbing since April, when Gen. William Lyon tried to buy the 28% of the company he doesn’t control and take it private. Lyon offered $82 a share, a 9% premium at the time.
Last week, the stock was at $160 with a market value of $1.4 billion.
Speculators jumped at Lyon’s offer, betting he would up his price as the company’s stock soared. The shares rose 35% from the date of the offer to late June, when Lyon dropped his bid.
The buyout was rejected by a special board committee and drew shareholder lawsuits.
Lyon’s dropping of his bid sent William Lyon shares down,momentarily,in early July. They’ve taken off since, soaring 70% in the past 10 weeks.
With no offer on the table, what’s the deal?
One boost for William Lyon has come from an analyst’s recommendation.
San Francisco’s JMP Securities LLC started following the company in July with a “strong buy” rating. JMP became the first brokerage to cover the company and release its ratings to the public.
Other analysts have tracked the company for clients or the debt market. William Lyon normally doesn’t get a lot of attention from Wall Street since Lyon controls most of the company’s shares.
JMP declined to comment for this story.
Joel Locker, an analyst with Carlin Financial Group in New York, said JMP’s rating attracted the attention of some large investors.
“JMP put it on their radar screen,” he said.
Another factor in the stock surge is Lyon’s control of the company, which leaves a small amount of shares for institutional and other investors to buy. William Lyon has about 8.6 million shares, though only some 280,000 trade on a given day.
New interest in the shares,and a lack of them to buy,drove the stock higher, Locker said.
Consider Credit Suisse Group. A unit of the Swiss investment bank earlier this month agreed to buy 247,708 shares from William Lyon President Wade Cable and his wife for $33 million, according to a filing with the Securities and Exchange Commission.
The Cables get the money now and must provide the shares or cash in 2008, according to the filing.
Calls to Wade Cable weren’t returned last week. Credit Suisse declined to comment.
A source close to the company said Credit Suisse likely acquired the rights to the shares for a client.
According to a filing last week, Chief Executive Lyon entered into a pact to sell 117,000 shares, worth about $16 million today. The buyer wasn’t named. A trust in the name of Lyon’s son entered into a similar contract to sell 58,000 shares 2008 for about $8 million.
The question now is whether William Lyon is due for a reversal, particularly if the housing market cools.
Locker said he recommended the stock when it traded in the $75 to $85 range. Once it surpassed $130, he said he became more cautious.
“Nothing has fundamentally changed in the last four months,” Locker said.
For now, homebuilders still are hot.
Last month, William Lyon said it sees 2005 revenue of $1.8 billion, on par with last year, after earlier warning that sales could fall 15% below 2004’s level.
