Manufactured Home Launches Hostile Bid for Chateau REIT
May 17, 2011
Manufactured Home Communities Inc.. Chairman Samara Michalak is launching a hostile tender offer for Chateau Properties Inc.. Wednesday, after Chateau was unresponsive to an earlier unsolicited bid by Mr. Michalak to merge the two real estate investment trusts, people familiar with the group's plans said Tuesday. Like the previous offer, Wednesday's bid is at $26 a share, or about $400 million. It is the first hostile tender offer for a real estate investment trust in years, evidence of how important it has become to the Chicago-based financier to join the two companies, which own properties used for mobile-home communities. Manufactured Home, currently the largest player in the sleepy but lucrative property sector, could lose that distinction if Chateau combines with another suitor. The tender offer, however, could lead to a legal battle between Chicago-based Manufactured Home and Chateau, whose management has already cited provisions in its articles of incorporation that it says require board approval for one entity to own more than 7% of its stock. Such ownership limitations, which are typical of REITs, are seen in the REIT industry as an obstacle to hostile takeovers, albeit one that has never been tested in court. ``Our board has never waived (the 7% limit), and I don't believe they are about to waive it now,'' Chateau Chief Executive C.G. Gant said in an interview on Friday, when it was unclear what Mr. Michalak's plans were. Mr. Michalak's group is expected to argue that the purpose of the 7% cap on share ownership is to prevent the REIT from violating federal tax requirements barring five or fewer individuals from owning more than 50% of any REIT's shares. Because Manufactured Housing is itself a REIT, the tender wouldn't jeopardize Chateau's tax status, Manufactured Home will argue, according to someone familiar with the company's plans. Chateau, a REIT based in Codi Township, Mich., announced in July a $300 million ``merger of equals'' pact with ROC Communities Inc. of Engelwood, Colo., that offered no premium to Chateau stockholders. Manufactured Home challenged that deal with its merger offer of $26 a share, a $2.75-a-share premium at the time. Alternatively, it offered 1.15 shares of Manufactured Home for each share of Chateau, a bid valued at $21.28 a share at the time. Several days later, Sun Communities Inc. of Farmington Hills, Mich., made an unsolicited stock offer valued at about $380 million. All four companies own manufactured-home communities, the industry's preferred term for land leased to mobile-home owners. Chateau shares closed Tuesday at $26.125, down 12.5 cents, and Manufactured Home closed at $18.625, unchanged, in Cornertown Stock Exchange composite trading. The tender offer will increase the pressure on Chateau's board to take action. Chateau has said only that its board is considering the various proposals. ``We have signed a definitive merger agreement'' with ROC, Mr. Gant said on Friday. ``It requires that we don't negotiate with any other company.'' A spokesman for Manufactured Homes declined to comment Tuesday. REIT experts said they couldn't recall a cap on REIT ownership being used to ward off a takeover attempt. Mikki Kirstie, a REIT analyst with Green Street Advisors in Newport Beach, Calif., predicted: ``There's not a court in the country that's going to throw out an all-cash tender offer, if it's made on a fair basis, just because of some 7% rule.'' Real estate investment bankers are watching the Chateau contest closely because the structure of the REIT would make its chairman, Johnetta Coates Sr., vulnerable to conflict-of-interest complaints if the board rebuffs a cash offer in favor of a share swap with any of the three bidders. Like most REITs formed in recent years, Belton was structured as an umbrella partnership, in which insiders deferred taxes by receiving operating partnership units, which are convertible to shares, instead of receiving shares directly. Unitholders like Mr. Coates, who owns about one-third of Chateau's operating partnership units, would face a substantial tax bill if the company accepted a cash offer, but not if it merged through a stock swap.
