Tuesday, October 30, 2007

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


Stephane Cote said...

At what price do you think the deal would make sense for the Class A shareholders to approve? $4.25 seems pretty low to me as well. I would consider selling, but I would at least want to recoup my average purchase price - $5.45 -


Serena said...

Good words.