A dispute between some
shareholders and thecompany's management is gaining steam, with shareholders alleging that the company misled them about support from
Janus Capital Group
for a merger with
, among other breaches of fiduciary duty.
The deal between Clayton and Berkshire was approved by Claytonshareholders by a slim margin on July 30 and certified by the Delawaresecretary of state on Aug. 7. Meanwhile, Clayton shareholders who opposed the deal filed a complaint on July 25 in the circuit court for Blount County, Tenn., alleging "breach of fiduciary duty and abuse of control" during the merger process. The Tennessee Court of Appeals
temporarily froze the buyout on Aug. 8 so the lower court could consider the allegations of fraud.
Clayton Homes, which produces low- to medium-priced manufactured homes, is based in Tennessee but incorporated in Delaware.
The shareholders believe that Clayton Homes CEO KevinClayton knew that Janus didn't own a big stake in thecompany but nonetheless told shareholders that Janus supported the deal. The shareholders are inferring such behavior largely on the basis of an alleged email between Clayton and Janus managers.
has obtained a copy of the alleged email from a source and has verified that it is the document that was filed in a Knoxville, Tenn., appellate court on Monday, Aug. 25.
Janus had no comment on the email or the courtroom proceedings. Clayton Homes didn't return calls.
The case suggests that the best interests of executives andshareholders may not always be aligned simply because both parties owncompany stock. According to allegations in the complaint, executives'personal interests in selling the company to Berkshire Hathaway exceeded their interests in getting the overall highest price per share.
The complaint alleges that executives negotiated postmerger salaries and positions plus cash payments for unvested stock options as part of the deal. To make it difficult to find a superior offer, the complaint alleges, executives agreed to pay a $35 million termination fee to Berkshire if Clayton backed out and found a better deal. The complaint says that executives also agreed to vote their shares -- almost 30% of the voting stock -- for the merger regardless of whether a better offer came down the pike. The merger is still frozen, pending the outcome of the suit.
Allegations like these have arisen in other mergers, especially for companies founded by a family with a significant stake. Whether lawyers can show fraud or a breach of fiduciary duty may rest on executives' methods of rounding up other shareholder votes to approve the merger. This is the core issue of the Clayton/Janus email.
In a press release dated Aug. 6, Clayton Homes noted that only 52.4% of the outstanding shares voted in favor of the $1.7 billion merger.
According to the email that was filed in court, Brad Slingerlend, an analyst with Janus, wrote to CEO Kevin Clayton on July 15:
We were under the impression we owned Clayton stock in our sub advised accounts past the record date after we rolled most of our retail fund positions over into Berkshire stock, but apparently after finally getting confirmation back from our fund accounting department, it appears the shares were sold before the record date. I wish we could be a bigger help in the vote. We have continued to advocate the deal to your other shareholders in a very proactive way. We held a call with Bear Sterns today and explained our position and can continue to call anyone you would like us to so that we can help support the deal in any way that we can.
In a response from Clayton addressed to Janus fund managers and analysts Slingerlend, Blaine Rollins, Jonathan Coleman and Dan Kozlowski, Clayton said:
OK, please continue to promote the merger and do not share with others that those are not available. I appreciate you speaking with Bear this morning and hope others will call as well.
that none of its mutual funds owned any Clayton Homes stock as of April 30, three months before the vote was to be cast, and the firmwide ownership, which includes separate accounts managed by Janus majority-owned affiliates, was 1,500 shares. As of March 31, firmwide ownership was 8.82 million shares, or about 6.5% of the outstanding stock in Clayton Homes.
Jonas Max Ferris is co-founder of
MAXfunds.com, a fund research and analysis company, and partner in an investment advisor offering managed accounts in mutual funds. He welcomes column critiques, comments or baseless accusations at