After hinting at the possibility of privatization in a November Securities and Exchange Commission filing, Dublin, Ohio-based Dominion Homes announced late Friday, Jan. 18, that it has entered into a definitive agreement to be acquired by a buyout group.
The long-struggling company said that, as long as the merger agreement remains in effect, lenders would not exercise their right to declare default on the company until June 30, 2008.
In October 2006, $213 million (or 73%) of the company's debt was sold to hedge funds Field Point and Silver Oak Capital.
The buyout group consists of companies affiliated with Angelo Gordon & Co., L.P. and Silver Point Capital, L.P. and the company's largest shareholder, BRC Properties Inc. Douglas G. Borror, a principal of BRC Properties, will remain in his role as chairman of the board of directors and CEO of the company. The Borror family owns approximately 46.6% of Dominion's shares through BRC, but will not receive payment in this transaction.
Under the terms of the agreement, the company's shareholders will each receive $0.65 in cash per company share. This price reflects a 35% premium over the stock's closing price on Jan. 17. According to documents filed with the SEC, the agreement contains a "go shop" provision which allows Dominion the opportunity to solicit and engage in discussions and negotiations regarding other acquisition proposals through March 3, 2008. After this period, the company may not solicit other proposals.
The company's financial woes have been documented by Big Builder since March of 2006, when Pulte alum Jeffrey Croft was brought in by the Borror family to resurrect a company that many said had dug too deep a hole. Not only had Dominion gone long on owned land in its primary Columbus, Ohio, market during a run-up in 2003 and 2004, but the company was facing a public relations crisis related to unethical sales and mortgage loan practices, documented violations, and unusually high foreclosure rates.
Along with William Cornely, who was brought on board in January 2006, Croft spent his tenure focused on generating cash as the company stared down the barrel of a tenuous debt load. He was released from his position with Dominion earlier this year.
In the most recent quarter, Dominion posted just 153 sales, down nearly 80% from peak in 3Q03. Despite some land sales, the company still suffocates under a 16-year supply of land. In March of 2005, the company owned 20,097 lots, a 10-year supply at the time. Today, with 13,325 lots, it continues to suffocate under a 16-year supply, unable to recognize desperately needed liquidity from its position in struggling Midwest markets.
According to sources in the Columbus market, the company holds positions throughout Franklin, Licking, and Picaway Counties. Another potential land buyer who met with Dominion earlier this week told Big Builder, "They have a couple of A positions, a small handful of B positions, and a whole lot of C and D positions."
For the full year of 2006, Dominion sold $13.7 million in land and recognized gains of $795,000. During the third quarter of 2007, it completed $1.2 million in land sales for which no gain or loss was recorded.
As a result, the dire financial straights became worse. According to SEC documents, Dominion has little cash on hand and roughly $245 million in debt.
Dominion currently stands in violation of several of its financial covenants, including minimum EBITDA, minimum gross profit, minimum net worth, and minimum free cash flow. In a 10-Q filed last month, the company acknowledged, "It is likely that we will not satisfy those current covenants as well as the leverage ratio covenant in future quarters."
Since the beginning of 2007, there have been five amendments to the credit agreement established in December 2006, and with each, lenders continued to increase the over-advanced facility. With this announcement, lenders have again agreed to increase its existing credit facility.
A special committee of independent directors and the company's full board of directors have already approved the merger agreement and recommended to the company's shareholders that they adopt it, as they conclude it is in the best interest of shareholders. Raymond James & Associates Inc. advised the company, and Houlihan Lokey Howard & Zukin Financial Advisors Inc. advised the special committee.
The privatization is expected to close in the first half of 2008 and is subject to shareholder approval and customary closing conditions. Upon closing, the company will no longer be publicly traded.