Wednesday, October 1, 2014

Cavco Sets its Sights on Skyline

Manufacturing housing company, Cavco Industries, Inc formally expressed its intention to purchase Indiana-based manufacturing housing company, Skyline Corp. sending shares of the latter soaring by around 23%.

Over the past several weeks, Phoenix, AZ-based Cavco tried to persuade Skyline's board to engage in a friendly discussion. Cavco claims it has various proposals to improve Skyline's shareholder value which also includes an outright purchase of Skyline at a significant premium to its current market price.
However, Skyline's board failed to respond within the stipulated time coaxing Cavco to announce the proposed buyout offer which it claims will provide liquidity for Skyline shareholders at a premium of 29% to 66% above the Sep 24, 2014 closing price of $2.71 per share.

Skyline has reported pre-tax losses for seven consecutive financial years - 2008 to 2014 - due to distressed manufacturing housing industry conditions, tightening credit markets and unfavorable economic conditions. The company is also facing cash crunch. Its share price has declined 45% year-to-date through Sep 25. Last month, Skyline's independent accounting firm also issued a qualified opinion regarding its ability to continue as a going concern.

Cavco claims that Skyline's management has not taken proper steps to address its challenges. Cavco believes that it has the experience to improve results at troubled manufacturing housing companies and thus a merger would be in the best interest of Skyline shareholders, employees and customers.

A day earlier, Skyline expressed interest in selling its Recreational Vehicle Division whose sales declined 33% in the first nine months of fiscal 2014 to another company to improve its cash position. However, Cavco believes that this would only provide the troubled company short-term liquidity without addressing challenges at its larger housing segment which has been accounting for the majority of its losses.

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