Denver Union Pension Fund Stalls Deal

Berkshire Hathaway, based in Omaha, thought it had paid $12.50 per share, or $1.7 billion, for Clayton Homes, a manufactured housing community, based outside of Knoxville, TN. Then along came the Denver-based pension fund, which charged fraud and sought to halt the sale--after it closed on Aug. 6.

A judge in Tennessee this week ruled in favor of the Denver pension fund, and ordered a jury trial on the issues within the next 30 to 45 days.

Kevin Clayton, CEO of his namesake company, denies any fraud. And he says as far as he knows, this marks the first time a judge has halted a sale after it has been approved by shareholders. Indeed, he tells GlobeSt.com that Clayton Homes may file a countersuit against the meat cutters fund. The meat cutters union itself was merged with United Commercial Workers Local 7 more than a decade ago.

Clayton says the pension fund is a small investor, perhaps owning less than $75,000 in Clayton Homes stock.

George Barrett, lawyer for the fund, however, says the pension fund owns about 45,000 shares. The fund charges that Clatyon delayed the vote on the purchase by two weeks to drum up support. The Berkshire Hathaway offer was adopted on July 30 by a 52.4% margin, including his family's vote, which control about 30% of the stock. It was ratified on Aug. 6.

Kevin Clayton says with Warren Buffett's blessings, they delayed the vote to see if a better deal would materialize. No other offers materialized.

As late as July, Clayton's stock was trading over $13 per share, and last April it was briefly over $19. So why sell now, when it appears to be at the bottom of the market?

"Because the industry has made a fundamental, long-term change," Clayton tells GlobeSt.com. "This industry is driven by financing. Without reliable financing, you can't build, sell and lend on these homes."

Clayton explains the industry has been relying on securitization. "That is no longer prudent," he tells GlobeSt.com. "We're only getting about 90 cents on the dollar for our loans and the cost of capital has been rising. It's now estimated that over 50% of the industry sales are financed through normal loans, such as FHA and Fannie Mae. The securitization cost of funds is not competitive with traditional loans. Wall Street is not a reliable source for financing."