NASHVILLE (Bloomberg) — Clayton Homes Inc., a mobile-home maker being sold to billionaire investor Warren Buffett, can't proceed with the sale while a judge decides whether shareholders should be able to challenge it, a Tennessee court ruled.
The Tennessee Court of Appeals on Friday ordered Clayton Homes and Buffett's Berkshire Hathaway Inc. to take "no further action related to the merger" until a lower-court judge can review arguments in the case.
Clayton Homes said the merger was completed Thursday and the court action was delaying payment to the company's 40,000 "former stockholders."
"It's highly unusual that a process like this would be started after papers are already filed that complete the merger," said Tom Burnett, president of Merger Insight, which advises investors on the likelihood of proposed mergers. "I don't have a precedent for figuring out what's going to happen."
The purchase of the mobile-home builder and lender, based near Knoxville, Tenn., would be Buffett's biggest this year. Some shareholders said Buffett was taking advantage of a 50 percent slide in the sales of mobile homes since 1998 to grab the company on the cheap.
That lower-court judge has until Aug. 22 to issue his ruling. The appeals court decision orders the companies to "maintain the status quo of the current state of the merger, whatever that status may be," according to the court document.
Berkshire Chief Financial Officer Marc Hamburg didn't return calls seeking comment.
The companies filed papers with the state of Delaware yesterday indicating that Berkshire had taken control of Clayton Homes, officials of the mobile-home maker said Thursday.
The Tennessee appeals court ruling said the court was unsure whether the transaction was completed and asked the lower-court judge to determine that question, according to court papers.
The judge also must decide whether the Denver Area Meat Cutters and Employers Pension Plan, a Clayton Homes investor, can proceed with claims that the company unfairly refused to release the results of an initial vote on the takeover.
Clayton Homes' officials said they delayed releasing the votes for two weeks to allow other bidders to consider topping Buffett's offer. No other bidders emerged during that period, which ended last week. The suit claims the company postponed the vote count because it lacked support for the takeover and sought a way to keep Buffett's bid alive.
If the judge finds the purchase is completed and the meat packers' fund doesn't have legal standing to press its complaints, then the suit should be dismissed, according to court papers.
"The court's order reflects a concern that corporate machinations may have manipulated this process to the detriment of the company and its shareholders," said Darren Robbins, a San Diego-based lawyer representing the pension fund. The fund opposes Buffett's bid, saying it is too low.
The court's ruling has investors puzzled about whether Buffett's buyout of Clayton Homes is a done deal.
"I took this thing off my screen a couple of days ago," said Eric Ende of First Pacific Advisors, which opposed the takeover. "I viewed it as a done deal."