Chairman Offers to Rescue Presley Home Builder in Low-Cost Buyout

The chairman of Presley Cos., William Lyon, has offered to buy out the struggling company, one of Southern California’s largest home builders, for about 40 cents per share, much lower than the stock’s current price.

Lyon would pay about $18 million cash for the Newport Beach-based company, according to regulatory documents.

Presley said Thursday that a special board committee has been set up to evaluate the offer, which was submitted Tuesday and expires July 31. Presley officials declined to comment further. Lyon, who owns 15% of the company’s outstanding shares, could not be reached for comment.

The company’s stock closed Thursday at 63 cents a share, down 19 cents, on the New York Stock Exchange. The company went public, with a price of $10 a share, in October 1991, as the California housing market was peaking.

In May, the company, which has been saddled with heavy debts stemming from the housing slump earlier in the decade, hired an investment banking firm to help come up with options for resolving its financial problems.

While some analysts said Lyon’s offer seemed low for the company--which builds homes throughout the region and in Northern California, Arizona, New Mexico and Nevada--others said it may be the best offer the company can attract.

If Lyon also assumes some of Presley’s $240 million debt load, “this may be the best alternative--even if it doesn’t put Presley on the soundest footing right now,” said Steven Prococo of Lark Research Inc., a real estate research firm.

Other analysts also pointed out that Lyon should be able to achieve more efficient operations by folding Presley into his more successful home building firm, William Lyon Homes. The move also would create a company with a larger presence in the home building market, they added.

If the deal goes through, closely held William Lyon Homes would acquire Presley. Lyon Homes has been flourishing. In 1997, the company recorded $127 million in sales.

The deal also could give Lyon Homes “a chance to become a public company overnight that will open up a world of opportunity,” said John Burns, senior managing director of the Meyers Group, a real estate consulting firm.

Among other things, the builder could have better access to capital, a critical tool in an industry increasingly dominated by larger, publicly traded companies with significantly more resources than private firms, he said.

During the housing market’s slump earlier in the decade, Presley was stuck with huge inventories of unsold homes in master-planned communities in the Inland Empire and Stockton, where the housing market did not rebound as quickly as in the Bay Area, Orange County and some other regions.

As sales declined, the company restructured by swapping stock for debt and selling off assets. Lyon, who once had majority control of the company, reduced his stake as well.

Lately, Presley has switched strategies, buying smaller parcels more suitable for developing subdivisions rather than entire communities. Those are easier to sell and require smaller cash outlays.

Yet the company has struggled to repay what it owes, facing $20 million payments every six months to retire its debt.

“It is not clear whether this strategy will be successful enough to get them through the problems they have at this point,” analyst Prococo said. “They still have too much debt and must reduce it if they are going to be a stand-alone company.”

Lyon also owns William Lyon Co., which has focused largely on Orange County development. After that company also became saddled with mounting debts and downsized significantly, Lyon launched the successful William Lyon Homes in 1993.