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Founder Drops Bid for Builder

William Lyon says he won't make a new offer for his namesake firm at its current stock price, which has soared to 21% above his bid amount.

June 29, 2005|Annette Haddad | Times Staff Writer

William Lyon Homes' namesake chairman and controlling shareholder Tuesday dropped his buyout offer for the Newport Beach-based home builder, saying he did not want to make a new bid at the company's current stock price.

William Lyon's $82-a-share bid was rejected last week by the company's board as inadequate. William Lyon Homes shares rose 98 cents Tuesday to a record high of $99.49 amid another broad rally in the stocks of home builders.

That put the company's shares 21% higher than the chairman's offering price and 32% above their $75.25 price before he made the bid April 26.

The withdrawal of the offer was announced after the market closed.

The entire home building sector has racked up record high stock prices in recent weeks as mortgage rates continued to tick down and demand for new homes remained robust, despite growing concerns of a possible real estate bubble.

Given that strength, some investors wondered how much William Lyon Homes' shares would have risen if the founder hadn't made his offer, which at $82 a share was only four times the company's earnings per share over the last four quarters. That is far below valuations for many other home builders, which trade at about 10 times earnings or more.

Lyon "thought he could get the company at a bargain," said Stephen Brown, a Florida investor who owns 2,100 shares. "His offer put a brake on the stock. I would like to have seen the true valuation."

At least seven shareholder lawsuits were filed within days of Lyon's bid on grounds that it was inadequate.

A retired Air Force major general, Lyon, 82, owns a 48% equity stake and is the company's chief executive as well as its chairman. Trusts controlled by his son, William H. Lyon, own an additional 24% of the company's outstanding shares. At his offering price, the takeover would have cost him about $200 million.

A brief statement issued by the senior Lyon said that he remained interested in negotiating a deal to buy the public's shares but "did not intend to make a new bid at the company's current stock trading levels."

Lyon and the company did not return calls seeking comment.

Bob Poole, chairman and chief investment officer of Bricoleur Capital Management in San Diego, which controls 8,500 Lyon shares, said a fair price would have been about $120 a share.

Still, he said, "there is nothing wrong with the general bidding for the stock as he did" and not sweetening his offer. "I wish we would see it more often when stocks are ridiculously undervalued" as William Lyon Homes was, Poole added.

Based on the rise in the stock since he made his offer, the value of Lyon's stake has gained about $104 million.

Home building companies and their shareholders have long complained that Wall Street undervalues their stocks. The average price-to-earnings ratio for stocks in the Standard & Poor's 500 index is about 17.

Poole suggested that one reason that William Lyon Homes stock performed as well as it had since the buyout offer might be because Wall Street saw "the general's bid as a floor in the stock."

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