The board of William Lyon Homes in mid-2019 rebuffed a sales inquiry from another publicly traded homebuilder prior to reaching a deal to sell itself to Taylor Morrison Home Corp.
The initial proposal for that all-stock deal, which didn’t pass muster with the board for several reasons, would have valued William Lyon Homes at nearly 26% more than what the Taylor Morrison deal currently is valued at.
The executive chairman of the Newport Beach-based builder, Bill H. Lyon, didn’t support the all-stock deal, and also opted against working with other interested investment partners to take the company private over the course of 2019, regulatory filings indicate.
The strategic decisions by William Lyon’s board and executive team over the past year were detailed in a lengthy proxy statement filed late last month as the builder prepares to sell itself to Scottsdale-based Taylor Morrison (NYSE: TMHC).
William Lyon Homes (NYSE: WLH), whose roots date to the 1950s and whose associated firms have built more than 100,000 homes, announced that deal in early November.
Closing Soon
The deal—initially valued at around $830 million in cash and stock, or $2.4 billion, including debt—was initially expected to close around the end of March.
Taylor Morrison chairman and chief executive Sheryl Palmer said the timeline has moved up.
“The process has moved quicker than we imagined,” Palmer said in a letter to employees of both builders that was filed with the Securities and Exchange Commission on Dec. 26.
A stockholder meeting is now scheduled for Jan. 30, and “we expect to be in a position to close the transaction in early February,” said Palmer, who will be CEO of the combined companies.
William Lyon chief executive Matt Zaist will serve as a consultant to what will become the country’s fifth-largest builder post-sale. Bill H. Lyon will join Taylor Morrison’s board.
Additional personnel changes at the combined firms were detailed in the Dec. 23 print edition of the Business Journal.
Stock Swings
Last May, William Lyon Homes disclosed it was exploring strategic options, including a sale or going private, as a result of a depressed stock price; it was valued at roughly $740 million at the time.
Last month’s proxy statement indicates Bill H. Lyon, the son of the builder’s founder and chairman emeritus, Gen. William Lyon, had begun preliminary discussions with a private equity sponsor as early as November 2018, to “discuss its potential interest in being a co-investor with Mr. Lyon.”
The Lyon family controls the builder’s Class B shares, and their stake gives them the final say on most corporate voting matters.
The builder counts a total of about 38.8 million Class A and Class B shares, according to regulatory filings.
Its deal with Taylor Morrison, which was born out of a late-May meeting at a San Francisco housing conference between Zaist and Palmer, includes a mix of cash and stock—William Lyon shareholders will own about 23% of the combined company post-sale.
When the sales agreement was finalized on Nov. 4, the stock price of Taylor Morrison put the value of the deal at a little more than $830 million, and the deal represented a price of about $21.45 per share of William Lyon Homes’ Class A and B stock.
As of late December, the value of the deal had dipped to $19.80 for each share of William Lyon Homes common stock, or about $770 million, due to a roughly 18% drop in Taylor Morrison’s stock in November and December.
Other Interested Parties
A price closer to $970 million, or $25 per share, was offered to William Lyon Homes in mid-May, when an undisclosed public builder indicated interest in completing an all-stock buyout of the Newport Beach company, according to the proxy statement.
That offer—26% higher than what the Taylor Morrison deal currently is valued at—was vetted but ultimately not taken up by William Lyon’s board, which noted concerns from a prior set of negotiations with that firm.
In those prior negotiations, the timing of which wasn’t specified, the undisclosed company “had similarly initiated discussions based on an oral indication of valuation but had later significantly reduced that valuation following due diligence.”
The board also noted that the publicly traded company “did not have extensive experience with large-scale or public mergers and acquisitions.”
There’s been no reports detailing who the undisclosed bidder was.
Bill H. Lyon expressed an unwillingness to complete a sale with the other builder, the proxy statement indicated, and Zaist in early July told the CEO of that company a deal wouldn’t work.
Offers to take William Lyon Homes private were also considered over the course of 2019, although a firm price for doing so was never made, according to the proxy statement.
Two weeks prior to the Taylor Morrison deal being agreed to, an undisclosed private company reached out to Bill H. Lyon, for “discussions regarding its possible role as a co-investor with Mr. Lyon in a take-private transaction.”
Those discussions didn’t occur, according to the regulatory filings.
