Lyon Acquires Dominant Interest in Presley Cos.

Real estate developer William Lyon, moving to reclaim his position as one of Southern California’s largest home builders, agreed to acquire a dominant interest in the Presley Cos., the firm announced Thursday.

Lyon plans to combine Presley with his William Lyon Homes Inc. Though only a fraction of the size of his former empire, the combined companies would rank as the sixth-largest home builder in Southern California, with annual revenue of about $270 million, according to a recent survey.

Lyon, who is chairman of both Newport Beach-based companies, ranked among the region’s largest independent builders only a decade ago but was battered during the recession.

Under terms of the complex deal, which took more than 15 months to work out, Presley would acquire Lyon’s privately held firm, William Lyon Homes, for $48 million, and assume $30 million in debt.

In turn, Lyon and his son, William, have offered to acquire 10.6 million shares of Presley stock for 65 cents a share, or $6.9 million. The purchase would increase Lyon’s stake in Presley from 22% to about 49%.

The offer price, however, is below Presley’s current market price. The shares closed unchanged at 81 cents on the New York Stock Exchange on Thursday. They have been as high as $1.13 and as low as 38 cents over the last year.

The offer, which requires shareholder and regulatory approval, caps lengthy negotiations by Presley and Lyon, who initially offered to buy the entire company for $18 million in cash in 1998.

That bid, for 40 cents a share, also was far lower than Presley’s stock price at the time. It was rejected by the company’s board.

Presley and Lyon executives did not return phone calls.

The combined operation,, which would retain the Presley name, would enable Lyon Homes to spread beyond its Orange County core into San Diego and the Inland Empire, where Presley is one of the largest builders.

The deal comes at a time of consolidation in the Southern California home-building industry that has swept away a number of independent companies. Last year, for example, family-owned Lewis Homes of Upland was acquired by Kaufman & Broad Home Corp., now the nation’s largest home builder.

But analysts said Lyon’s combined operation would have greater resources to compete in an industry that has increasingly become driven by large, publicly traded builders. In Orange County alone, the top-10 home builders--all major companies--put up 49% of all homes sold last year, said Russ Valone, president of Market Profiles, a San Diego real estate research firm.

Lyon also would be operating a publicly held company that has the ability to attract capital at lower rates, analysts said.

“I think Lyon has been looking for an expanded stake in Presley for years, and I guess he sees an opportunity to take the combined company a lot further,” said David Chapman, an analyst who specializes in the home-building industry at Haskell & White, a Newport Beach-based accounting firm. “They’re trying to get back to where they were before.”

For years, Lyon’s company was the biggest builder in Orange County, outselling competitors here by a 2-to-1 ratio into the early 1990s and posting annual revenue of more than $1 billion.

But home sales tumbled during the county’s economic slump, creating big debts that ultimately forced the company to downsize significantly.

As the economy rebounded, pushing home prices to record levels, Lyon’s fortunes have improved. Through the first nine months, the company averaged more than one home sale per week at its seven Orange County developments, Chapman said. Through the first six months of the year, the company sold 489 homes, surpassing the 389 homes sold for the entire year in 1997, according to documents.

Presley also struggled, losing nearly $90 million in 1997 alone before turning a $9.8-million profit last year.

During the early 1990s, Presley had a large inventory of unsold homes, especially in the Inland Empire. To offset lower sales, the company restructured, swapping stock for debt and selling off assets.

In Southern California last year, Presley ranked eighth with 899 home sales, while Lyon ranked 33rd with 229 sales. In Orange County, Lyon Homes ranked 21st with 117 sales, while was No. 31 with 70 sales.

The combined company would rank 14th, according to the Meyers Group, an Irvine-based company that tracks new home sales.