When Berkshire Hathaway (NYSE:BRK.A) made a $12.50-a-share buyout offer in April for manufactured housing specialist Clayton Homes (NYSE:CMH), it seemed like a ho-hum affair. From candy to car insurance to underwear, Warren Buffett and Charlie Munger have a knack for buying into sleepy sectors and this was no exception.
Forget the sexy housing boom. Manufactured homes, which are new homesteads built in a factory and shipped to the eventual site, have been in a rut even as low mortgage rates have catapulted the rest of the housing market higher. While the industry continues to suffer through its fourth consecutive year of declining shipment, a third of the manufactured home plants in the country have closed down.
But everyone knows Buffett is not one for mercy killing. Berkshire Hathaway must have seen something in Clayton when it made its April Fool's Day acquisition announcement. And it's not alone. With Clayton shareholders set to vote on the buyout next week, such institutional investors in the company as Brandywine Asset Management and Cliffwood Partners have chimed in, urging fellow stakeholders to vote against the deal. Obviously, many people think that the deal won't fly at $12.50 because the stock closed at $13 yesterday.
Last night, things got even more interesting when Cerberus Capital Management announced its interest in making a competing bid for Clayton. Cerberus, you little homewrecker you.
Things are getting ugly here. Earlier this month, Clayton CEO Kevin Clayton made the unsavory move of trying to drum up support for the Berkshire offer by talking down the value of his own company. Ouch! That's a troubling about-face for a company that waxed so positive in its 2002 annual report. It had no problem bragging about posting profits for 28 straight years. It tooted its own horn about growing market share and its ability to keep 20 plants going while the competition faced closures.
You can't blame shareholders if they think there's enough gas in the tank to take this vehicle a few miles farther, even as Clayton focuses on an exit strategy. When a shrewd value hunter like Buffett makes a bid, it's only logical to think that the country's greatest investor believes that the company will be worth substantially more later.
Kevin Clayton sees a ceiling. Investors see the floor.
Do you think Berkshire Hathaway's buyout of Clayton will go through next week? Why does Warren Buffett buy such sleepy companies? Is it to catch the rest of the world while it's asleep? All this and more -- in the Berkshire Hathaway discussion board . Only on Fool.com.
