It took Gen. Douglas MacArthur close to three years to get back to the Philippines in World War II after famously declaring “I shall return” in 1942.
Gen. William Lyon took less than a year to return to the bargaining table for the Newport Beach homebuilder that bears his name.
Earlier this month, Lyon, an 83-year-old retired Air Force general, made a second offer to buy what he doesn’t already control of William Lyon Homes Inc.
Directly and through trusts, Lyon controls about 74.5% of the company’s shares.
Last April, Lyon sparked a fury in the homebuilder’s shares by offering to buy out the company and take it private.
Speculators jumped at the offer, betting Lyon would up his price as the company’s stock soared. The shares rose 35% in two months, forcing Lyon to drop his bid.
Stephen East, an analyst with Susquehanna Financial Group in Pennnsylvania who follows other homebuilders, called the entire episode a “fiasco.”
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Homes by William Lyon: orders down in January, February |
Lyon’s latest offer, which came March 16, sent the company’s shares up 30% in one day, bringing back memories of last year’s surge.
Things could be different this time around.
For one, Lyon, the company’s chairman and chief executive, is offering more.
Earlier Offer
Last year, he offered $82 a share for the rest of the company. This time around he’s offering $93 a share, a 23% premium above where the shares were before the offer.
The shares rose as high as $100 on the buyout offer and settled to around $95 last week.
The company counted a market value of about $830 million last week. The deal would cost Lyon about $220 million.
“It looks like this offer is a bit more reasonable,” said Alex Barron, an analyst with San Francisco based JMP Securities, the only brokerage that follows William Lyon Homes. “He’s obviously very serious about the bid.”
Even so, “The offer still seems to be a little on the low side,” said Barron, who has a $100 price target on the stock.
Another factor that could play into Lyon’s favor: the slowing housing market.
Home sales are slower than a year ago, particularly in California, Nevada and Arizona,key markets for William Lyon Homes.
That shifting market could make investors more willing to take Lyon’s offer and get out now.
“The softening has continued into 2006,” said Michael Grubbs, chief financial officer for William Lyon Homes, during the company’s quarterly conference call this month.
William Lyon saw contracts to buy homes fall 31% in the first eight weeks of the year from a year earlier. Cancellations for home orders were about 26% for the first eight weeks of the year, up from 12% a year earlier.
Then there’s a new board.
William Lyon Homes has new directors after last year’s takeover battle, in which the old board rejected Lyon’s offer as too low.
Four directors resigned after voting against Lyon’s offer. Replacements include Lawrence Higby, chief executive of Lake Forest-based Apria Healthcare Group Inc. Higby sits with Lyon on the moderate Republican group New Majority.
The new board isn’t likely to rubber stamp a deal, Barron said.
“The new directors know why the other guys quit,” he said. “They knew something like this could come up again.”
Last week the company’s board formed a committee to consider the offer. Higby, economist Arthur Laffer and former Bank of America Corp. executive Harold Greene are on the committee, which hired Morgan Stanley as an adviser.
Trying to buy the company again makes sense for Lyon, according to Barron.
“I don’t blame the general for trying to go private,” he said. “There are less issues he’ll have to deal with, and he will be able to take out healthy returns.”
Family considerations could be factoring into Lyon’s bid.
His son, William H. Lyon, 32, has been taking on more company responsibility with an eye to succeeding his father someday, sources said.
Privatizing the company could speed up that transition.
The younger Lyon now serves as vice president and chief administrative officer. He’s also a director.
And staying public is costly for William Lyon Homes. Only a small amount of the company’s shares are available for trading. But William Lyon Homes pays the same legal costs and other fees as more widely traded public companies.
Going private has its drawbacks, according to Susquehanna Financial’s East.
Having publicly traded shares is key for homebuilders “if growth, including acquisitions, is a primary objective,” he said.
Family ownership is common among homebuilders, East said. Going private ties more of the family’s wealth to the company and makes it harder to cash out shares, he said.
“As painful as being a public company can be at times, going private does not eliminate masters that have to be answered to,” East said. “Instead it just changes who the masters are.”
