Cavco Industries Inc. attempting hostile takeover of Elkhart-based Skyline Corp.
The news comes as the Elkhart-based company negotiates a deal to spin off its recreational vehicle division and sell it to Evergreen RV.
Jennifer Lamirand cleans up a weather sealed joint on a Skyline travel trailer at the Elkhart RV Open House Week Sept. 15, 2014. A Phoenix-based competitor is trying to acquire the Elkhart company in a hostile takeover bid. (The Elkhart Truth/file photo)
Jeff Parrott
Posted on Sept. 29, 2014 at 6:06 p.m.
Phoenix-based Cavco Industries Inc., a competitor in the manufactured housing industry, is attempting a hostile takeover of Elkhart-based Skyline Corp.
After making several offers to buy the struggling manufactured housing and recreational vehicle maker, Cavco said in a statement released Friday, Sept. 27, that it never received a reply from Skyline.
In an open letter to Skyline’s board of directors, Cavco chairman and CEO Joseph Stegmayer said Cavco will “pursue other approaches” if Skyline didn’t agree to promptly meet with and “discuss a potential transaction” by Monday, Sept. 29.
In the letter, Stegmayer says he first contacted Skyline’s founder Art Decio in October 2011 about Cavco’s interest in buying Skyline, but he did not hear back from him. Last year, on Aug. 7, he visited with Skyline’s president and CEO, Bruce Page, in Skyline’s offices. After Stegmayer again expressed Cavco’s interest, Page indicated that he would discuss Cavco’s interest with Decio and contact Stegmayer again, but Page never responded again, Stegmayer says in the letter.
Then came news on Aug. 22 in Skyline’s annual statement that its independent auditing firm, Crowe Horwath, had expressed “substantial doubt” that Skyline could continue operating because of its recurring losses and lack of capital from outside funding sources.
Skyline has reported annual losses before income taxes for seven consecutive years, with losses totaling about $122 million.
Cavco then formally expressed its interest to buy out the company in two separate letters dated Aug. 25 and Sept. 5 to CEO Page and the members of the Skyline board of directors, Stegmayer wrote.
Cavco was offering Skyline’s shareholders a price between $3.50 and $4.50 per share in an all-cash transaction. That would represent a 29-percent to 66-percent premium to the Sept. 24 closing price of $2.71 per share.
The stock closed at $3.50 on Friday following Cavco’s announcement of its takeover bid and news that Skyline had signed a letter of interest to spin off its recreational business division and sell it to Middlebury-based Evergreen RV.
Stegmayer declined Monday to discuss what “other approaches” Cavco would take if Skyline continued to ignore its overtures.
“This is an ongoing situation and we’re not in a position to comment on day-to-day operations,” Stegmayer said. “We’re hoping they’ll want to talk to us. Really, the question is are they going to have a friendly discussion with us?”
The Elkhart Truth left a message Monday with Decio’s secretary seeking his comment. A man who declined to identify himself returned the call later in the day and said that a Skyline official would not be available to comment until Tuesday.
In a hostile takeover, a corporate raider attempts to gain control of a target corporation over the target’s objections. If the raider can elicit no response from the target, its next step could be to approach shareholders directly and offer to buy its stock at a price significantly higher than its current market value, said certified public accountant Dan Smogor, a partner who specializes in corporate accounting at Kruggel Lawton, a South Bend/Elkhart accounting firm.
Noting he was speaking generally and not specifically about the Cavco-Skyline situation, Smogor said the raider could buy at least 51 percent of the target’s outstanding shares, or it could buy a smaller percentage while attempting to persuade shareholders who own more than half of the stock to vote the raider’s way on key moves it thinks will improve the company’s value, in what’s known as a “proxy fight.”
“20 percent is pretty influential if you have a good game plan behind it,” Smogor said.
According to Skyline’s most recent annual statement listing those with at least five percent of Skyline’s nearly 8.4 million outstanding shares, Decio owns 17.1 percent, followed by Wells Fargo & Co. with 14.1 percent and New York-based GAMCO Investors Inc. with 11.9 percent.
Stegmayer said Cavco wants to keep Skyline operating.
“As we stated clearly in our press release, we have a good admiration for the operations of the Skyline brand,” Stegmayer said. “Our intention is not to close them down. Certainly not.”
In its press release Friday, Cavco cited several reasons that its proposal “makes sense” for Skyline shareholders:
- Skyline shares declined about 80 pecent for the three-year period that ended Dec. 31.
- Its shares declined an additional 48 percent for this calendar year, as of Sept. 24.
- Skyline has exhausted its cash position and recently borrowed $6.3 million on life insurance policies, which contradicts what Skyline described as recently as Sept. 25 when it stated that its balance sheet “is among the soundest in American industry with a strong cash position and no corporate debt.”
In the press release, Stegmayer also says his attempts to discuss the acquisition included his attendance at Skyline’s annual shareholder meeting Sept. 22. At the meeting, management did not present a report on operations, discuss any plans to address its current challenges, or open up the meeting to questions from shareholders, Stegmayer said.
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