Elkhart-based Skyline Corp. says it will continue to review an offer for a potential acquisition by an Arizona company. Cavco Industries Inc. says its attempts to open a dialogue have gone unanswered. Skyline signed a letter of interest last week to sell its RV division to Middlebury-based Evergreen Recreational Vehicles LLC.
October 1, 2014
Elkhart, Ind. — Skyline Corporation today issued the following statement regarding its ongoing efforts to evaluate strategic initiatives and to rebut certain statements contained in the September 26, 2014 release issued by Cavco Industries, Inc. (“Cavco”) and Cavco's letter dated September 22, 2014:
The Skyline Board of Directors and management team are committed to act in the best interests of the Company and our shareholders. In this regard, Skyline's Board of Directors regularly considers initiatives to help optimize shareholder value over the long term.
Our Board has established a special committee tasked to evaluate strategic initiatives and make recommendations to the full Board. As part of its work, that committee, with input from our management team and advisors, plans to thoroughly evaluate all potential strategic proposals and other initiatives to further improve operations and strengthen our capitalization.
We are disappointed and find it counterproductive that Cavco issued its press release and published its letter. Contrary to the statements set forth in the release, the first time our Board received a proposal with any semblance of specificity from Cavco was September 22, 2014. While the Board believes Cavco's September 22 letter significantly undervalues Skyline's stock, the special committee and the Board will thoroughly review Cavco's proposals and respond in due course.
Upon receiving Cavco's letter, the Board promptly advised Cavco that it needed more time to consider the proposals. Following this communication, Cavco chose to publish its letter just four days after delivering the letter to Skyline, and on the same day that Skyline had previously announced it signed a letter of interest for Evergreen Recreational Vehicles, LLC to acquire substantially all of the assets of the Company's Recreational Vehicle Division. The Board believes this transaction with Evergreen is aligned with our strategic objectives and is in the best interest of shareholders.
As always, our Board and management team remain committed to executing on the Company's strategic plan and driving long-term shareholder value.
About Skyline Corporation
Skyline Corporation and its consolidated subsidiaries designs, produces, and markets manufactured housing, modular housing, and recreational vehicles (travel trailers, fifth wheels, and park models) to independent dealers and manufactured housing communities located throughout the United States and Canada. Skyline Corporation was originally incorporated in Indiana in 1959, as successor to a business founded in 1951, and is one of the largest producers of manufactured and modular housing in the United States, with 2,434 manufactured homes sold and 457 modular homes sold in fiscal 2014. The Company also sold 2,825 recreational vehicles in fiscal 2014, which are sold under a number of trademarks for travel trailers, fifth wheels, and park models. Skyline generated net sales of approximately $191.7 million in fiscal 2014. For more information, visit www.skylinecorp.com.
Source: Skyline Corp.
September 26, 2014
Phoenix, Ariz. — Cavco Industries, Inc. (NASDAQ: CVCO) today announced its interest in a potential acquisition of Skyline Corporation, a publicly traded company, at a significant market premium. Over the past several weeks, Cavco has attempted to open a dialogue with the board of directors of Skyline through a series of formal communications.
Cavco has suggested that it would be in the best interest of Skyline shareholders for its board to discuss the various proposals by Cavco to improve shareholder value, including a purchase by Cavco of all outstanding shares of Skyline at an attractive premium to current market prices. Skyline did not respond to any of Cavco's attempts over an approximately 30 day period to engage in a productive dialogue, which included a series of letters addressed to Skyline's board of directors, phone calls to Skyline's longest serving board member and former CEO, and Joseph Stegmayer, President and CEO of Cavco, attending Skyline's annual meeting of shareholders in an effort to discuss the matter with any of Skyline's directors who would be open to exploring options for maximizing shareholder value.
After Cavco sent two additional written communications addressed to Skyline's board of directors, one of which asked Skyline to respond within one week to simply schedule a time for preliminary discussions between the companies, Cavco received a letter on September 25, 2014, from Skyline's lead director stating without further explanation that the board would not be able to respond to Cavco's request within the requested time frame.
According to a September 26, 2014 press release, Skyline is pursuing the sale of its RVdivision. While a successful sale of that division may provide short-term liquidity for Skyline, it would not address the substantially larger operating losses incurred by the housing segment in the last seven fiscal years. The RV division of Skyline's business represented less than half of Skyline's fiscal 2014 loss before income taxes of $11.9 million. In contrast, Cavco has proposed to purchase all of Skyline's operations at a significant premium to market that Cavco believes will provide a greater and more assured and definitive return to Skyline's shareholders.
Mr. Stegmayer commented, “Cavco has a great deal of respect for the Skyline brand and for Skyline's experienced and highly credentialed board members. Unfortunately Skyline has experienced difficult times during the past seven years and has meaningfully underperformed.” Skyline has reported annual losses before income taxes for seven consecutive fiscal years, 2008 through 2014.
These cumulative losses total approximately $122 million before income taxes, the majority of which were incurred by the housing segment. Skyline shareholders' equity declined from approximately $178 million at the beginning of fiscal 2008 to approximately $34 million at May 31, 2014. On August 22, 2014, Skyline's independent accounting firm issued a qualified opinion regarding Skyline's ability to continue as a going concern.
Skyline's Form 10-K for the fiscal year ended May 31, 2014 further disclosed, “Due to recurring losses, the Corporation experienced negative cash flows from operating activities. As a result, the Corporation has utilized its cash, investments in U.S. Treasury Bills, proceeds from the sale of assets and borrowings from the cash surrender of life insurance policies. The level of historical negative cash flows from operations and not having available funding from outside financing sources raise substantial doubt about the Corporation's ability to continue as a going concern.”
Cavco's proposed offer set forth in its letter would provide liquidity for Skyline shareholders at a substantial premium of 29% to 66% above the September 24, 2014 closing price of $2.71 per share. Cavco's offer would have no financing contingencies. Cavco also offered other possible concepts that would assist Skyline.
Why Cavco's proposal makes sense for Skyline shareholders
• Skyline shares declined approximately 80% for the three year period ended December 31, 2013
• Skyline shares declined an additional 48% for calendar year 2014 as of September 24, 2014
• Skyline has exhausted its cash position and recently borrowed $6.3 million on life insurance policies, which contradicts what Skyline described as recently as September 25, 2014 as “Skyline's balance sheet is among the soundest in