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Investor urges Fleetwood sale to rival Champion

The firm should consider the action to cut capacity and costs, SLS Management says.

August 28, 2007|From Bloomberg News

Fleetwood Enterprises Inc. should consider a sale to manufactured-housing competitor Champion Enterprises Inc. to reduce manufacturing capacity and cut costs, Fleetwood's third-largest shareholder said.

SLS Management proposed the idea in a letter to Riverside-based Fleetwood's board that was included Monday in a regulatory filing. The New York-based investor declined to comment further.

Fleetwood, whose largest business is motor homes and travel trailers, posted a $90-million net loss for its fiscal year that ended April 29 and hasn't had an annual profit since 2000. The company got $518.3 million, or 26%, of its revenue from manufactured housing for the year. Those sales slid 35%.

"It's not a new idea, Champion consolidating some manufactured-housing capacity, but the letter is a little unclear about what to do with the RV segment," said Kathryn Thompson, an analyst at Avondale Partners in Nashville.

Based on last year's sales, before any reductions such as what SLS suggests, a combined Champion and Fleetwood would move ahead of Clayton Homes Inc. as the largest U.S. maker of manufactured housing, according to Avondale Partners. Clayton is owned by billionaire Warren E. Buffett's Berkshire Hathaway Inc.

Champion, based in Auburn Hills, Mich., and Fleetwood could save more than $60 million a year through a combination that included closing at least 11 plants, SLS said in the letter. "We believe the best alternative available is a sale to Champion structured in a tax-free merger transaction," the investor said.

Kathy Munson, Fleetwood's director of investor relations, wasn't available to comment.

Champion spokeswoman Laurie Van Raemdonck said the company had said it would consider mergers to consolidate capacity. She wouldn't comment specifically about a combination with Fleetwood.

"The manufactured-housing industry is rife with overcapacity and is ripe for consolidation," she said. "It would certainly need to make business sense and economic sense for our shareholders."

Champion's profit rose more than threefold last year to $138.3 million, as sales increased 7.2% to $1.36 billion.

Total revenue for Fleetwood for its most recent fiscal year was $2.01 billion.

Fleetwood shares fell 17 cents to $9.10. Champion's declined 34 cents to $10.90.

SLS said in the filing that it held 7.59 million Fleetwood shares, or almost 12% of those outstanding. Wells Capital Management is Fleetwood's largest stockholder, with 8.55 million shares, or a 13.3% stake, according to data compiled by Bloomberg. First Pacific Advisors is the second-biggest, with 8.4 million shares, or 13.1%.

The stake held by SLS is valued at $69.1 million based on Monday's closing price.

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