Saturday, November 17, 2007

More Viceroy Homes News

There was another article in the National Post recently about the Viceroy Homes privatization. It clearly outlines the hypocrisies of the deal, and mentions this blog site. Click here to get the complete article

On another note, one very astute shareholder recently forwarded me his analysis of the latest quarterly earnings for Viceroy Homes. It follows:

Results issued last night are not as bad as expected. Without currency translation loss on USA assets, would have actually made a small profit. Not bad, given the housing crunch. Still no debt and now over $16 million in cash.
Of interest is Note 3: Capital Stock, item b) Issued capital stock of the company is as follows:
If my math is correct, the average issue price of the Class A shares is about $4.92, while the effective average issue price of the Class B shares is under $0.15!! Not bad for the Class B shareholders since they were collecting annual dividends of $0.30 per share until recently, on top of being paid generous salaries.
So the Class A shares have put up the vast majority of the equity. Yet the Class B shareholders want the Class A shareholders to sell at $4.25, while the 3 Class B shareholders continue to keep their shares, at least for now, to profit from the Russian venture. Not a great deal as far as the Class A shareholders are concerned.

Saturday, November 3, 2007

The true worth of Viceroy Homes

To be absolutely clear, although we are against the current privatization deal, we would be open to exploring a buyout, should the purchase price be fair and reasonable.

The current offer to take the company private for $4.25 per share is absolutely ridiculous, and should not be considered what so ever.

Evaluating the true value of a company is quite difficult and somewhat subjective. But throught he following paragraphs I will show you exactly why we feel the current offer is way too low.

Following info from 2007 annual information form


Viceroy Homes went public in 1986.

On September 1, 1993, the Company issued 2,100,000 Subordinate Voting Shares pursuant to a private placement of special warrants. The net proceeds of the equity issue were approximately $9,654,000. So each share was purchased for $4.6

In 1997, through a sale of special warrants, the company issued 2,200,001 shares for proceeds of $20,529,000. So each share was purchased for $9.33

In 1997 the company had Revenue of 46.879 Million and Net income of $2,053,000

Now in 2007, the management would like to take the company private through a share buyout at $4.25 per share. Has the Value of the company, it's assets and its potential really dropped from $9.33 per share to $4.25 per share in ten years?

Well, in 2007, As per the 2007 Annual report, Viceroy had Revenues of 82 Million and declared a loss of 1.3 Million. So, we can see that the business has actually grown over the years by over 40 million in revenue. Although the company lost a small amount of money in 2007, in 2006 the company actually made 4.1 million dollars on revenue of 102 Million dollars. So clearly, although 2007 may have been a rough year, the company as a whole has grown considerably and in 2006 it was highly profitable.

Except for 2007 and 2005, Viceroy homes has been profitable for every year since 1997, in many cases reporting profits in excess of $5 million per year. Why should we then not assume that our latest troubles, since 2007 are not only temporary blips in an otherwise fine earnings track record.


There are currently 11,047,217 common shares outstanding (both Class A and B) and at $4.25 per share, the company is being valued at about 47 Million dollars.

If we look at the latest balance sheet of the company, we see Assets of 57.4 Million vs Liabilities of 15.5 Million and tax liability of 3.1 Million for a Shareholder equity of 38.6 Million.

In the assets, there are 25.4 Million worth of property plant and equipment. What the numbers don't tell is that most of the land was purchased decades ago, and since the land is carried at book value (purchase value) its true current worth is not reflected.

The other property and machines have been updated over the years and are still technologically current.

It would be conservative to say that the actual value of the land and property has almost doubled over the last 50 years, so even though the company is carrying the assets at only $25.4 Million, they would be appraised at least to $50 Million.

When we use this number to value the assets, we get a shareholder equity value of approximately $63 Million. Considering the 11 Million shares outstanding, we can arrive at a book value for Viceroy Homes of $5.75 per share. This is absolute bare minimum and represents no premium to book value.

Given the leading position of the company in the manufactured home industry and its well developed network of dealers, a fair offer for the company would range from $6 to $7 per share.

Our intent with voting against the privatization deal is to

Stop the buyout, with the intent of returning the company to profitability, and return the dividend, under the leadership of a more competent management team,


Force the Class B shareholders and the Russian buyout firm to raise their bid for the class A shares into the $6 to $7 price range.

Given the level of positive response from individual shareholders as well as larger institutional shareholders who own over 25% of the Class A shares, we remain completely confident in our ability to meet our objectives.

New article in National Post raises questions about Privatization

I would encourage everybody to take a look at a new article written in the National Post concerning the privatization deal. You can get the full article here.
The article is by Barry Critchley

Here are some excerpts:

"none of the retail shareholders he has contacted is pleased with the deal. In his view, Viceroy's breakup value, even without the Russian deal and clientele, exceeds $7 a share.

"They have no debt, have good technology which requires better management, and own significant assets, including land purchased more than 50 years ago and carried on the balance sheet at cost," he said.

For the rest of the shareholders, their objections include this query:

If the deal is so good for the public shareholders -- at the time, the offer was described as a 37% premium to the recent trading price-- why aren't management shareholders selling?

It's unusual for a company to be privatized and for the insiders to continue to hold stock.

The no-selling by the insiders -- some of whom started the company more than 50 years ago -- led McVety to wonder, what is the real game plan? In his view, it is nothing more than a way for the holders of the class B shares to sell their stake to the Russians at a later date -- but for a higher price than $4.25 a share.

And those suspicions were heightened when William Simpson, Viceroy's chief financial officer, said that as a result of OPIN's investment, Viceroy hopes to gain a "bunch of business." If that does happen, no prizes for guessing which Viceroy shareholders will gain."


Again, I encourage everyone to read the complete article. It clearly states our concerns and shows exactly why we feel that if you vote for this deal, you are being swindled. The vast majority of the people I have spoken with are completely against this deal and we will be voting against it.

The true value of Viceroy Homes is considerably more than $4.25 per share, and we hope that by voting against the deal, we will ultimately be able to get a much better price.

Viceroy has a long history, and given the huge insider ownership, management has a strong interest in keeping this company profitable and viable. The privatization is a tactic to maximize their own wealth at the expense of regular shareholders. If management really wants to take the company private, they should be prepared to raise their bid to a fair price (at least $6 per class A share in my opinion)

Mario Rizzi

514 967 9827

Wednesday, October 31, 2007

Why the Class B shareholders are not selling their shares

As you must be aware, the terms of this privatization deal call for a Russian investment firm (Joint Stock Company Open Investments) to purchase all Class A shares at $4.25 per share. Meanwhile, the Class B shares (multiple voting shares) most of which are owned by company founder Gaylord Lindal (he owns 3.65 million shares) will not be sold, rather the Class B shareholders will continue to have a stake in the company. The first question that comes to my mind is, why aren't the Class B shareholders selling?

I had the chance to call up Bill Simpson, Viceroy Homes VP Finance and spoke with him about why the Class B shareholders, namely Christopher and Gaylord Lindal were not selling their shares, if in fact the Russian takeover offer was good.

Bill Simpson replied a that the Lindal family was continuing to hold onto their shares for sentimental reason. Since Gaylord had founded the company over 50 years ago, he didn't feel right just selling his stake. --A weak argument at best--

I didn't buy this sentimental argument at all. I replied to him, "It's every entrepreneurs dream to start a company from scratch, just like Gaylord did, and build it into an empire just like Gaylord did." -- Clearly I'm embellishing Gaylord's accomplishments, but given the utter preposterousness of the whole deal, the hint of sarcasm did not seem out of place. --

I continued, " And then after years of hard work, Gaylord should be more than happy to sell his shares at $4.25, sell the company, thereby reaping a financial windfall. All his years of work and now he could sell to the Russians for millions. But why then does Gaylord not want to sell?"

Bill Simpson stops talking about the sentimental drivel, and brings up another reason. " Well, in fact, the family will be staying to provide their expertise, since they have over 50 years experience. They will help the Russians..."

So there you have it, apparently Gaylord and Christopher Lindal will continue to hold onto their Class B shares in order to provide their experience and expertise to the Russians.

In case you may not be aware, Gaylord Lindal is over 80 years old. I saw him speaking at the Annual shareholder meeting just a few months ago. He is frail, slow and on a few instances, a bit incoherent. I'm sure he's a nice guy, he actually seemed charming, and I'm sure he knows a lot about the manufactured housing industry, but clearly his best days have past. To think that he will be central to instructing the Russians on how to construct homes in Russia, or that he will be traveling to Russia on business trips is absolutely ridiculous.

Then we have Christopher Lindal, the founders son. There had been some speculation that he was going to be the successor to the Viceroy Homes throne... walking in his father's footsteps, could he have been a future CEO? Well now that the Russians might be taking over, it looks like Christopher will have to remain in the backseat. But could the Russians use his experience? Surely Christopher Lindal might want to hold onto his shares and provide ongoing expertise and guidance to the new Russian owners.

Well, in fact given his track record, I wouldn't even trust Christopher to guide lawnmower!! Christopher was the guiding force behind Viceroy's botched entry into the Japanese market. Almost a decade was wasted trying to build the Japanese business, and now it has all but dissolved into nothing.

Meanwhile, as Christoper was busy in the "land of the rising sun" business in Canada was suffering. Viceroy completely missed the boat on the whole oil induced expansion in Alberta.

And the housing boom in the United States? Yes, neither Gaylord or Christopher were able to spot it, and Viceroy never really capitalized on the opportunity.

So, do you think the Russians really need the Lindal family expertise to guide them? Not at all.

You know the real reason the Lindal's are holding onto their Class B shares. It's all about money. After the Russians buy out the Class A shares, they can easily make a great offer to buy out the Class B shares for maybe $8 to $10.

Tuesday, October 30, 2007

Viceroy Story printed in National Post

There's a great article that appeared in the Financial Post today, written by Barry Critchley.
You can see the complete article here

I have clipped out some really interesting bits, and then made some commentary at the end.

Article Clips:

William Simpson, chief financial officer, said the release was made late last week because "that's when the release was approved." But Simpson, who is also a director, said that he has heard "that the committee has started work."

The planned going-private transaction is unusual in another way: OPIN isn't planning to take control of Viceroy Homes. Instead, it plans to make an offer for just the class A shares. The class B, multiple-voting shares will continue to be owned by the current holders. Gaylord Lindal, chief executive, and Chris Lindal, chief operating officer, own 3.65 million and 269,684 class B shares, respectively.

"The class Bs will stay in place," said Simpson, who added OPIN is planning to make the offer because it is potentially a big customer. "They want an equity interest and hopefully [for us] that will bring a bunch of business," said Simpson, noting that Viceroy does hardly any business with Russia at present. "In this way, a potential customer will own the class A shares rather than a bunch of strangers on Bay Street."

It's unusual for management to have a direct equity stake in a going-private transaction. Simpson said the situation arose because the owners of the class B shares weren't interested in selling. But when Masonite was purchased by KKR in 2005, management had a continuing 5% stake.

Some commentary on this article by Mario Rizzi:

We must carefully note that the special committee is not actually valuing the Viceroy Homes company, rather it will only be evaluating the Class A shares. In most cases, a special committee is simply a rubber stamp show.... I can almost guarantee that they will side with management and give their approval of the deal.

And since they are only evaluating the Class A shares, they don't have the admit that the whole company is worth considerably more that what is being offered, they can simply arbitrarily state that the Class A shares are fairly priced at $4.25. It is a very vague and convoluted process, and it can be tricky for the average investor. But careful analysis will reveal the truth.

Also note the vague answer given by Bill Simpson when asked why there was such a delay in announcing the formation of the special committee..."that's when the release was approved" said Bill Simpson. In fact, the delaying of the press release seams to be a self serving stall tactic.

At present there is tremendous opposition to the current privatization deal. Thousands of Class A shareholders are willing to vote their millions of shares against the deal. But with each passing day, more of these individual investors simply grow tired of waiting, and many simply sell their shares on the open market. It is very conceivable that the Russians are buying up these shares in order to eventually vote them in favor of the deal. So the more time that is wasted, the more individuals who sell out, and the greater chance there is of the present deal getting approval. Seems to be a clever scheme if I ever saw one.

I've said it before, but once again, you can see that it is only the Class A sharholders who will be selling. The Class B shareholders, namely Gaylord and Christopher Lindal will retain their interest in the company and Bill Simpson clearly states (can it be more blatant) that this whole deal
"will bring a bunch of business" for Viceroy, thereby creating a windfal profit for the remaining Class B shareholders.

Bill Simpson claims, clearly enough, that the reason the Class B shareholders will continue to hold onto their shares is because "
owners of the class B shares weren't interested in selling." Now, if this whole deal was really that great, and if the price was really fair, then why wouldn't Gaylord and Christopher Lindal, as well as the other Class B shareholders sell out?
The answer: Because they know the offer is too LOW! So they're not selling!

Viceroy Privatization Chart

In this 2 year chart you can clearly see downward progression of the company stock value. The share price came under tremendous pressure after the dividend was chopped and once again after it was completely eliminated.

The management claimed it was forced to eliminate the dividend in a bid to save cash in the face of deteriorating market conditions. This would seem to be truthful... but then after the dividend was cut and the stock dropped more than a dollar (into the $4.10 range) management announced a normal course issuer bid (stock repurchase), so the company was in effect spending money to buy back shares (repurchased over 70 000 shares in the 4$ range). Once the dividend was completely eliminated (management claims as a last ditch effort to save every penny?) the stock dropped even more. With the stock trading in the low 3 dollar range, the rate of the buyback was boosted into full force - from February 22, 2007 to July 30, 2007, Viceroy Homes repurchased over 200 000 shares. All told, 277 800 shares were repurchased.

So, on the one hand management eliminates the dividend to save money, but then it spends close to 1 Million dollars to repurchase its own shares... doesn't make much sense???

Was Gaylord Lindal thinking about going private the whole time? By buying back shares, there would naturally be less shares to oppose a deal, and Gaylord's share of the company would be increased, thereby enriching himself once the deal was announced.

Viceroy Stock Chart 5 years

With this chart you can clearly see the progression of the company stock price over the last 5 years. You can notice that the stock price was at an all time low when the privatization deal was announced. Logically this would be the best time to take the company private, because it would cost the buyer the least. Gaylord Lindal and the other Class B shareholders don't care at all, because they are still getting to hold onto their shares. Only the regular Class A shareholders, the individual investors and the common folk will be forced to sell.

If an investor had purchases shares in Viceroy at any time in the last 5 years, the purchase price would have almost certainly been at more than 4$ per Class A share. So it is almost certain that most average people will end up losing money. What ever happened to the old adage " buy low and sell high?"

Well if you invested in Viceroy Homes, it wouldn't matter what price you paid for it, with the privatization deal, you would be selling at the bottom. Except if you're Gaylord Lindal and gang, then you could just hold onto your Class B shares and sell out in a few years for the big bucks!

An open letter against the Viceroy Homes privatization deal

I am a shareholder and I find what Viceroy Homes is doing to be absolutely despicable. The company is very tight lipped with details, and given that insiders (mostly class B shareholders) have such a large share they can afford to be since it is hard for outsiders to oppose.

Going back to the spring time when they canceled their dividend, the management was saying that they did this as a prudent move due to degrading market conditions (they wanted to save money). But then as the stock began to drop, they enacted a normal course issuer bid and started buying up shares on the open market... so they weren't really trying to save that much money. They purchased over 277 000 class A shares.

Now they announce plans to go private and sell off the class A shares, while management gets to still hold onto a fair bit of the company in the form of Class B shares. They expect the shareholders to be gullible enough to fall for this whole act.

Management, always wanted to take the company private, so they canceled the dividend, let the shares drop, and then started re-purchasing, so that there would be less shares out there to vote AGAINST the privatization.

The sum being offered (4.25$) is absolutely pathetic. Especially when compared to the prices that the stock was trading at last year. And if we look at their assets which have been over depreciated, like many industrial companies, you get a clear picture that shares are worth much more.

If the price is so good, then why won't the insiders sell out?? Well, in your article, Bill Simpson answers the question himself. He says the buyout "will bring a bunch of business" … that only the insiders will be able to benefit from.

The name of the game is to buy out the class A shareholders as cheaply as possible so that the Russians can buy out the rest of the company for more. Within a year Gaylord Lindal will sell his stake for probably 8$ or more per share.... the class A shareholders will be left out to dry.

Also notice that in the press release for the special committee, it is stated that they will assess the value of the class A shares, not the whole company... this is two completely different things.

I am working with as many shareholders as possible to build support against this deal. To date, many individual shareholders have expressed their dissatisfaction with the terms of the deal, and several larger shareholders have vowed to vote against the deal as it is presently structured. Viceroy is aware of this. The only reason that I can think of for Viceroy to be dragging out the whole process is to get as many shareholders as possible to sell their shares on the open market. You can notice that there are huge open purchase orders on the buy side... although uncertain, this could likely be the Russians, or related shareholders, who would like to buy as many shares as possible in order to get the merger vote passed.

I've already spoken with Bill Simpson as well, and for this quarters earnings report we can expect a disaster. And really, why shouldn't we... management has no more drive to run this company as well as possible because they are fascinated by the buyout. Moreover, if they run the company badly for the next few quarters, more shareholders will just sell out, and they will be able to pass the privatization vote with ease.

Things are not as they seem at Viceroy, and with any luck, this privatization will be stopped.

Mario Rizzi

514 967 9827

Thursday, October 25, 2007

Viceroy Homes announces the appointment of a Special Committee of independent directors

 Thursday October 25, 5:20 pm ET


PORT HOPE, ON, Oct. 25 /CNW/ - Viceroy Homes Limited (the "Company") confirmed today that its Board of Directors has appointed a Special Committee of independent, non-management directors to consider the previously announced proposal by Joint Stock Company Open Investments ("OPIN") to acquire all of the Company's Class A Subordinate Voting Shares at a price of $4.25 (CDN) per share in cash pursuant to a statutory plan of arrangement that would be subject to Court and shareholder approvals, including approval by a special resolution passed by the holders of Class A Subordinate Voting Shares.

The members of the Special Committee are Bruce Buckley (Chairman), John Panneton and Christopher Ridabock. The Special Committee has retained Blair Franklin Capital Partners Inc. to prepare a formal valuation of the Company's Class A Subordinate Voting Shares and to provide independent financial advice to the Special Committee in connection with the OPIN proposal. The Special Committee has engaged Bennett Jones LLP as its independent legal adviser. The Special Committee will present its recommendations concerning the OPIN proposal to the Company's Board of Directors in due course.

Founded 52 years ago, Viceroy Homes is a leader in pre-engineered housing that offers high quality building designs and materials combined with lower cost and reduced on-site construction time. Viceroy is the largest supplier of Canadian housing technology to a growing export market providing superior housing solutions for builders and developers around the world. The Company has vertically integrated manufacturing facilities located in Ontario and British Columbia. Viceroy's Class A Subordinate Voting Shares trade on the Toronto Stock Exchange under the symbol VHL.A.

For further information

William R. Simpson, Vice-President, Finance, Secretary-Treasurer and CFO, (905) 885-8600 Ext. 220,

Thursday, August 30, 2007

Viceroy Homes announces proposal to privatize

13:03 EDT Tuesday, August 28, 2007


PORT HOPE, ON, Aug. 28 /CNW/ - Viceroy Homes Limited (the "Company") announced today that it has been informed that Joint Stock Company Open Investments ("OPIN"), a real estate development and investment company based inMoscow, Russia, intends to make a proposal to the Board of Directors of the Company to take the Company private.

OPIN has informed the Company that it has entered into an agreement with Viceroy Construction (1984) Limited, Gaylord G. Lindal, Christopher H. Lindal andFred Haas (collectively, the "MVS Shareholders"), the holders of all the outstanding Class B Multiple Voting Shares of Viceroy, whereby the MVS Shareholders would continue as shareholders of Viceroy after the going private transaction is completed. Among other things, the agreement provides that, subject to certain conditions including the execution of a shareholders' agreement after the approval of the plan of arrangement, they will vote their Class B Multiple Voting Shares in favour of the transaction.

As part of the proposed transaction, OPIN (through an affiliated entity) would acquire the outstanding Class A Subordinate Voting Shares of Viceroy for C$4.25 cash per share, which represents an approximately 37% premium over the C$3.10 closing price of the Class A Subordinate Voting Shares on theToronto Stock Exchange on August 27, 2007, and an approximately 37% premium over the volume weighted average trading price over the past three months.

The Board intends to form a special committee to review any such proposal and the Company will make a further announcement at a later date.

Founded 52 years ago, Viceroy Homes is a leader in pre-engineered housing that offers high-quality building designs and materials combined with lower cost and reduced on-site construction time. Viceroy is the largest supplier of Canadian housing technology to a growing export market providing superior housing solutions for builders and developers around the world. The Company has vertically integrated manufacturing facilities located in Ontario and British Columbia. Viceroy's Class A Subordinate Voting Shares trade on theToronto Stock Exchange under the symbol VHL.A.

For further information: William R. Simpson, Vice-President, Finance and Secretary-Treasurer, (905) 885-8600 - Ext. 220,

Thursday, February 15, 2007

Viceroy Homes announces the suspension of dividend

18:30 EST Monday, February 12, 2007


PORT HOPE, ON, Feb. 12 /CNW/ - Viceroy Homes today announced that the Company will temporarily suspend its quarterly dividend, reflecting the weak Japanese Yen and the prolonged negative impact this is having on the competitiveness of the products it sells there. Over the past year, the company has experienced a significant reduction of incoming orders fromJapan, historically its largest market.

This move comes after the company announced a reduction in the quarterly dividend in November 2006.

"This difficult decision is a necessary and prudent step in the midst of successive disappointing quarters and a very tough period inJapan . Even though we have a strategy to boost our North American business, these initiatives will need time to take hold," said Gaylord Lindal, President, Chairman and CEO of Viceroy Homes. "As we noted in November, our cash position remains strong, we have no debt and we are optimistic about future sales growth in our key markets. We hoped that reducing the dividend would be enough to carry us through this period; however, Viceroy's Board of Directors determined that suspending the dividend was necessary at this point."

The dividend suspension will affect payments that would have been made on March 1st, the fourth quarter of fiscal 2007.

Founded 51 years ago, Viceroy Homes is a leader in pre-engineered housing that offers high quality building designs and materials combined with lower cost and reduced on-site construction time. Viceroy is the largest supplier of Canadian housing technology to a growing export market providing superior housing solutions for builders and developers around the world. The Company has vertically integrated manufacturing facilities located in Ontario and British Columbia. Viceroy's Class A Subordinate Voting Shares trade on theToronto Stock Exchange under the symbol VHL.A.

For further information: William R. Simpson, Vice-President, Finance and Secretary-Treasurer, (905) 885-8600 - Ext. 220;