A special committee of the independent directors at William Lyon Homes rejected majority owner Bill Lyon’s buyout offer last week. Not a surprise, perhaps, but interesting.
On one level it was an easy call,the General’s offer was for $82 a share, while the stock had climbed to more than $90 as of last week.
The stock was around $75 when Lyon made his offer in late April, and since then the stock, along with those of other homebuilders, have risen nicely, thanks to a friendly interest-rate environment and continued strong housing demand.
That makes it appear that the General was trying to buy on the cheap. His offer has triggered several investor lawsuits and some snide chat-room remarks.
Then again, directors had to consider the possibility that the stock might recede back to the $75 level, especially if, as some economists and other observers increasingly fear, the housing market takes a turn for the worst.
Only 28% of the company’s stock is publicly traded, which discourages a bidding war.
It might even be the minority shareholders and speculators who are the sharpies here, objecting to the bid and driving up the stock price on the belief that if Lyon really wants total control, he’ll pay dearly for it.
Whatever the case, it’s clear that in these post-Enron days, it’s not only plaintiff lawyers who are breathing down directors’ necks.
Regulators are taking a harder line.
Those concerned with Chris Cox’s likely nomination as Securities and Exchange Commission chairman typically have questioned whether he’ll be a tough-enough enforcer. And the press and public are more skeptical about insider deals.
And if Lyon’s independent directors needed any further reminder of what can happen when directors fail to do their jobs, newspaper headlines provided it: The panel’s rejection of Lyon’s offer came the same day that former bosses John Rigas and son Timothy were sentenced to prison for defrauding Adelphia Communications, and three days after former top execs Dennis Kozlowski and Mark H. Swartz were convicted of looting Tyco.
At first blush, the Lyon special committee certainly appears to be favorably inclined toward the General. Its members are two of Lyon’s longtime OC and industry colleagues, William McFarland and Michael Meyer; fellow general (and defense industry consultant) James Dalton; and Randolph Westerfield, dean of the Marshall School of Business at USC, where Lyon is a big donor and life member of the board of trustees.
Yet the committee concluded the General’s offer was “inadequate.” And it noted the rejection was made in consultation with outside financial and legal advisers, which is what you say to protect your rear flank.
A lawyer for the committee told the Orange County Register “the ball is now in” the General’s court.
It will be fun to see if Lyon ups his bid, which would vindicate the directors and trigger another round of scrutiny and likely legal actions.
But having missed out on the springtime stock runup, and amid increasing concern about a housing bubble, the General may simply hold ’em.
No cheap sale, but no rich exit, either.
,Rick Reiff
