William Lyon Agrees to Buy Major Stake in Ailing Presley

Real estate magnate William Lyon, moving to consolidate his home-building empire, agreed Thursday to acquire a dominant interest in financially ailing Presley Cos., one of Southern California’s largest home builders.

Under the complex deal, Presley would acquire Lyon’s privately held firm, William Lyon Homes Inc., for $48 million, or about twice the book value of Lyon’s home-building company.

In turn, Lyon Homes offered to purchase 40% to 49% of Presley’s stock at 62 cents per share. Preliminary numbers indicate that existing Presley shareholders would receive between $11 million and $13.4 million for their shares.

The combined companies, meanwhile, would retain between $34 million and $37 million of the cash Presley would pay for Lyon Homes.

William Lyon, who also is Presley’s chairman and already owns 15% of its stock, would gain control of as much as 65%, or 33.9 million of Presley’s overall shares, in the plan, leaving him firmly in command of both companies.

The tentative deal caps months of negotiations by Presley and Lyon, who initially offered to buy Presley for $18 million in cash last summer. But the bid, far lower than Presley’s stock price at the time, was rejected by the company’s board.

Officials of the two companies were not available for comment.

Their boards have until March 31 to complete the deal. The plan depends on a number of contingencies, including Presley’s ability to obtain financing.

The deal was announced Thursday afternoon after the stock market had closed. Presley shares closed at 47 cents, down 3 cents, on the New York Stock Exchange. When Presley went public in October 1991, the firm’s stock was valued at $10 per share. It peaked in February 1992 at $17.25.

During the housing slump in the early 1990s, Presley was stuck with huge backlogs of unsold homes in the Inland Empire and Stockton.

As sales declined, it restructured by swapping stock for debt and selling off assets. It has begun buying parcels that can be developed into subdivisions rather than entire communities, requiring smaller cash outlays.

Yet the company, which faced $20-million payments every six months, struggled to retire its debt.

Earlier this year, Presley restructured its debt, receiving a loan that increased its line of credit to $100 million from $72 million. The deadline for repaying debts was extended to May 2001.

The move bolstered Presley’s liquidity, allowing the company to better compete against other home builders.