The Snowball_ Warren Buffett and the Business of Life - Alice Schroeder [454]
And, indeed, by the day of the meeting, exactly zero other bidders had emerged for Clayton Homes. It was still a toss-up whether the Claytons had enough votes to win approval of the sale, however. Jim Clayton faced an hour-long barrage of questions from agitated shareholders who had packed the auditorium where the meeting was held. Manufactured-housing stocks had been on a tear since the deal was announced, making the $12.50 price look even worse by comparison. Some shareholders wanted Cerberus to have a chance to make its offer, even though it had had two months to prepare a bid and there was no way to be certain that Cerberus was serious about buying Clayton—as opposed to showing up as a spoiler to Buffett by coming in at the last minute.
The Claytons were caught in a terrible bind. If the vote failed, which it very well might do—for one large shareholder, Fidelity Investments, had announced its intention to change its vote from yes to no—there might be no deal, and Clayton could get sued for having signed the agreement not to consider other bids. If the vote passed and Clayton sold to Berkshire, Clayton could get sued for ignoring another, possibly higher bid.
Kevin Clayton left the meeting to call Buffett and ask him to agree to a delay on the vote, to allow Cerberus time to make a bid. Buffett said okay—if they would pay Berkshire $5 million for the delay. Clayton agreed to Buffett’s price, reconvened the meeting, and adjourned it before taking a vote.34
By now the business press was covering the story as a David and Goliath set piece in which a gang of tiny Davids—the hedge funds that were fighting the deal—tried to defeat the greedy Claytons and the colossus Buffett. Journalists are automatic skeptics of establishment figures; hedge fund managers, by and large, are anti-establishment by nature; they had learned to play the press for mutual benefit like a virtuoso with his Stradivarius. The press turned on the mighty Buffett. If he was buying something, the price must be too cheap.
The test of whether Buffett was stealing Clayton would be whether another bidder could be found. A week later, when seventy accountants, lawyers, and financial specialists from Cerberus Capital and three other firms—the Blackstone Group, Credit Suisse, and Texas Pacific Group—descended on Knoxville, Tennessee, led by the Cerberus chairman, former Vice President Dan Quayle, the clock began to tick toward the moment of truth. Clayton housed them in its fanciest mobile homes, adjoining the headquarters. Most of the team toured Clayton’s plants and pored through rooms full of documents, focusing increasingly on the huge maw of the mortgage unit and the way it sucked down capital.35 Quayle roamed the hallways shaking hands, repeating that Cerberus was a “family-friendly company.”36
While Cerberus and the other firms were deliberating, the Denver Area Meat Cutters and Employers Pension Plan filed a lawsuit against Clayton, charging it with “self-dealing, abusive control, and lack of candor.”37 Buffett felt he was being blackmailed. The Meat-Cutters’ Union’s lawsuit was orchestrated by Darren Robbins, a partner of Milberg Weiss, a law firm that specialized in representing investors in class-action lawsuits. “It’s a well-known fact that they committed a fraud,” said Robbins.38 Twenty-two plaintiff’s lawyers, assistants, and researchers descended upon Knoxville. Plaintiff’s lawyers do not stay in mobile homes. They reportedly bunkered into nine luxury condominiums downtown, ready for a six-month battle.39
After a week of their own digging, the Cerberus people returned to New York and faxed a sheet labeled “for discussion