By Alison Rice. After a year of plunging shipments, plant closures, and the exits of major financing companies, the manufactured housing industry finally got some good news. In April, legendary investor Warren Buffett announced he would buy Clayton Homes for $1.7 billion in cash.
"Internally, there's a lot of joy at the acquisition, because the industry has suffered a lot of adverse effects as a result of the loss of major lenders last year," says James Clifton, vice president of economics and housing finance at the Manufactured Housing Institute in Arlington, Va. "It wipes the slate clean, because the world's leading investor sees value in the manufactured housing sector."
The world's leading investor certainly got a deal, paying just $12.50 a share for Knoxville, Tenn.-based Clayton. One of the few currently profitable manufactured housing companies, Clayton last year reported $124 million in net income on $1.2 billion in revenue. "It's an absolute steal for Warren Buffett," says Barbara Allen, housing analyst for New York-based Natexis Bleichroeder, who believes Clayton's stock deserved a higher valuation. "I can't blame him, but I am puzzled and dismayed that the board would accept the offer."
Clayton officials would not comment on the acquisition, citing the SEC's "quiet period" rules, but company shareholders are expected to vote on the deal in May or June.
As surprising as the Clayton transaction is, it actually represents Buffett's third venture into the manufactured housing industry in the past year. (He already owns building product companies Johns Manville and Shaw Industries.) He has invested significantly in North Carolina-based Oakwood Homes Corp., and his company, Omaha, Neb.-based Berkshire Hathaway, will be the majority shareholder when Oakwood emerges from bankruptcy.
Buffett also made a play earlier this year for Conseco Finance, which had been a major source of inventory financing for manufactured home dealers.
That bid for Conseco Finance may have foreshadowed his interest in Clayton, whose subsidiary Vanderbilt Mortgage and Finance originated $913 million in mortgages to manufactured home buyers last year. "Part of the attraction is Clayton's lending unit," Allen says. "Buffett has been buying in the subprime lending area."
Will the Oracle of Omaha next add a home builder to his portfolio? Allen doubts it. "The problem is, Mr. Buffett doesn't pay very much, so the time to sell is in a recession. He'd never touch them at the price they are now."