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.


Susan McVety said...

Hi Mario,
I like your blog. I was also at the Viceroy Homes annual meeting this year. I remember a share holder asked about whether there were any plans to sell the company in the future and we were told that it was something they might consider but they had NO IMMEDIATE plans to sell. I'm sure they were yanking our chains. They must have already been in negotiation with the Russians. It's a scam!
Keep up the fight.

Martin Swail said...

Nice site! I was wondering what to do with my shares as well. This merger, or privatization sounds a bit fishy. I was fortunate to have purchased my shares at 4.5, but I will still be losing money if I vote for the deal.

Have you seen the article in the National post about Viceroy? It was published on Oct 30... basically saying that there is quite a bit of opposition to this deal. I'll vote no!

Mario Rizzi said...

Hi, here is the link for the complete Viceroy article you are referring to. There is a group of Quebec investors voicing strong opposition to the deal. I have spoken with several members and it looks like if we can get a few more of the large shareholders on board, we can prevent the privatization, or at least get the price raised to a fair value.

Anonymous said...

I was an original purchaser of shares at the issued price of $10.00. I watched with glee as the price went to $12.00 and the dividends came in quarterly. I spent 17 years of my life working for this company, and the only reason it went public was to benefit Gaylord as he was getting killed with taxes on the salary he was taking. Only 25% of the shares were originally sold so you can do the math on what his dividend income was in 1987 and the added benefits of grossing up. I sold my shares some years ago at a large loss [ $4.25 ] per share but thats my problem. The comments regading asset values as well as the comments regarding the abilities of both Gaylord and Chris are both corrcct and unfortunet. Neither man has really work a day in the last 30 years and it was only throught the efforts of Fred Hass that the company survived. It is however my understanding that he is no longer involved with the day to day operation of the company. Your opposition to this offer is correct, and this company is worth double the offer with the proper management team in place. It has survived for over 55 years with Gaylord in charge and without the Russians and it can still survive with a new management team. With the assets it has, no debt and lots of cash why the need to sell. If you can not get $8.00 to $10.00 per share,tell the Russians to go home.