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!

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