In a sure sign that in order to survive the hobbled housing market you must take chances and make drastic moves, two of the largest home builders are going to be merging. According to the Washington Business Journal:
Pulte Homes Inc. has agreed to buy fellow homebuilder Centex Corp. in a stock swap valued at $1.3 billion. The acquisition also includes net debt of $1.8 billion, giving the entire transaction a cost of $3.1 billion.
According to Pulte CEO Richard J. Dugas, Jr. the combination will put both firms, “in an excellent position to navigate through the current housing downturn” and “accelerate a return to profitability.” Pulte has lost money in each of the last nine quarters. Centex has been in the red for the last seven quarters.
The Wall Street Journal reports:
In a decision the executives labeled a first-mover advantage and a game changer, Michigan-based Pulte will acquire Centex Corp. for about $1.3 billion in stock. The companies said Wednesday that the combined company would have a market capitalization of $4.1 billion, beating out D.R. Horton Inc. (DHI), the largest home builder by volume, with a market capitalization of $3.4 billion. Its shares gained nearly 3%.
Under the deal, which also includes $1.8 billion of debt, Centex shareholders will receive 0.975 Pulte common shares for each share of Centex they own. Based on Pulte’s Tuesday closing price of $10.77, the deal is valued at $10.50 per Centex share, a 38% premium over Centex’s Tuesday close of $7.62. Pulte shareholders will own about 68% of the combined company, while Centex’s will own about 32%.
For more information on the merger, the two companies have created a website PremierBuilderUSA.com with facts, figures, forward looking statements, etc.
Will the new goliath have what it takes to survive a flat or even negative housing market over the next few years . . . only time will tell.
What do you think?
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I’m not sure that merging is going to change the facts on the ground. There is now an overabundance of inventory out there. Will these builders be able to thrive in an environment where people aren’t buying new homes?