Berkshire Hathaway Moves Closer to Purchase of Clayton Homes

Warren Buffett’s Berkshire Hathaway Inc. moved closer to buying mobile-home maker Clayton Homes Inc. when a Delaware judge refused to keep shareholders from voting on the $1.7-billion acquisition next month.

Orbis Investment Management Ltd., a money management firm that owns 5% of Clayton, sued this month, contending Berkshire’s $12.50-a-share offer is too low.

Orbis wanted a judge to order Maryville, Tenn.-based Clayton to hold a regular annual meeting first so shareholders could vote on a proposal to require that a majority of independent stockholders approve the merger.

The mobile-home business has languished over the last five years, in part because of bad loans and reduced lending. Sales fell to 180,000 homes last year, down 52% from about 372,000 units in 1998, according to the Manufactured Housing Institute of Arlington, Va.

Clayton’s shares fell 16 cents Friday to close at $12.54 on the New York Stock Exchange. The stock recorded a high of $15.80 a year ago.

Clayton Homes disclosed Friday that its earnings per share for the fiscal fourth quarter, ending today, would probably be as much as 7 cents less than last year’s 25 cents a share for the same period. The company cited a decline in shipments and weak economic conditions for the expected earnings drop.

The stock “is at the bottom of the cycle,” said Clayton shareholder E.D. Starr of Washington, who owns about 10,000 shares.

Starr said he opposed the transaction at the current price and would prefer $16 to $17 a share.

Delaware Chancery Court Judge Stephen Lamb said at a hearing Friday in Wilmington, Del., that he wouldn’t stop the vote, scheduled for July 16, because Orbis and other opponents can fight the acquisition by organizing a “just say no” protest campaign.

Shareholders “will have the opportunity on July 16 to vote against the merger, and if it’s voted down there will be a general meeting” to be scheduled by Clayton directors, Lamb said.

Bermuda-based Orbis said it intends to oppose the sale.

“We maintain our position that Clayton Homes is a great company with attractive growth prospects and is worth well more than $12.50 per share,” Orbis said in a statement.

Clayton Chairman James Clayton and the Clayton Family Foundation own about 28% of the company.

Buffett’s spokeswoman said he wasn’t available for comment.

Lamb rejected allegations by Orbis lawyer Robert Green that Clayton had improperly convened annual meetings in the past.

“There’s nothing to suggest there’s been any wrongdoing” by Clayton management, the judge said, adding that “the directors were all validly elected.”

Green told the judge that Clayton executives “want to entrench themselves in office.”

Clayton lawyer Gregory Williams said Orbis is “trying to get the waters muddied” by questioning directors’ actions simply because “Orbis doesn’t like the Berkshire Hathaway transaction.”