Clayton sale protests questioned

By DAVID MOON, Moon Capital Management
July 27, 2003

This ought to be the final week in the Clayton Homes Saga. Or it might not be. We will find out after the Wednesday shareholders meeting.

It is interesting that some Clayton shareholders presume to know more about the business than the founder or the company executives. That is any shareholder's prerogative - to consider any information he deems pertinent and determine what he thinks the company is worth. One would think, however, that the opinion of the industry's most successful management team would carry some influence.

At the July 16 shareholders' meeting, some of the more vocal opponents to the Clayton/Berkshire Hathaway merger cited their confidence in the Clayton's management as a reason for not wanting to sell their shares. This is the same management whose opinion about the prospects for the industry they dismiss.

It is also interesting to note the apparent motivation of some of the shareholders at the meeting. Some wanted to make a difference; some wanted to make a point. Others wanted to make a scene.

William Gray, president of Orbis Investment Management, opposes the Berkshire offer. He clearly disagreed with the meeting's procedure and wanted the vote finalized at the July 16 meeting. Although his firm owns 7.2 million Clayton shares, he was never publicly confrontational. He did not grandstand.

The same could not be said of everyone. Some speakers, at least one of whom was not a shareholder of record, obviously considered the meeting an opportunity to air gripes or grab a little attention. The impact of these displays only distracted attention and energy from the real activities of the meeting: dealing with the Berkshire offer and the allegation that the company could fetch a higher price if offered for sale in a different way.

A shareholders meeting is not a democracy. It's more like a system where folks get to cast their votes in proportion to the amount of taxes they pay. If you only own 300 shares, that may be a huge portion of your personal wealth, but it just doesn't count as much as the guy (or firm) who owns a million shares. This proxy battle is not about something written in an annual report three years ago. It is not about who buys lunch at the meeting. At its core, this proxy battle is between and among a few very large institutional and inside shareholders.

Anyone who owns Clayton shares probably has confidence in the management's ability to run the company. Perhaps, too much. But the undecided shareholders - the same ones who purport to trust the Clayton executives to run the company - those shareholders question either the accuracy or honesty of Clayton's industry assessment. There are plenty of potential reasons Jim Clayton might not want to sell the company. But there is only one logical reason he would sell it at this time - he thinks this is the right price.

David Moon is president of Moon Capital Management, a Knoxville-based investment management firm. This article originally appeared in the News Sentinel (Knoxville, TN).

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