Pulte Homes to Buy Centex for $1.3 Billion
Why
Pulte Homes Inc. agreed to buy Centex Corp. for $1.3 billion in an all-stock deal that creates the largest U.S. homebuilder by revenue and throws each of them a lifeline in the worst housing slump since the 1930s. Pulte agreed to pay 0.975 of a share for each Centex share, valuing Centex at $10.50, or 38 percent more than yesterday's closing price, the Bloomfield Hills, Michigan-based company said today in a statement. The transaction, approved by both companies' boards, includes $1.8 billion in net debt. "This is really good because not only are there too many homes, there are too many homebuilders," said Vicki Bryan, a senior high-yield bond analyst for New York-based Gimme Credit LLC. "Cash is king and this gives them $3.4 billion, the most in the industry, which means they don't need the banks." The companies are betting that by combining they will be better able to survive the longest housing decline since the Great Depression, with new home sales down more than 75 percent since their July 2005 peak. An unexpected sales jump in February may signal the housing market is stabilizing, said Pulte Chief Executive Officer Richard Dugas in an interview. No Crystal Ball "We're not suggesting we have a perfect crystal ball but we're cautiously optimistic about what we're seeing now," Dugas said. "The combination means we will return to profitability sooner than we would." The companies agreed to a deal after Centex lost 70 percent of its value in the past year, while Pulte lost 30 percent. Pulte reported net losses for each of the last nine quarters and Centex has posted losses for the last seven quarters. While neither Dugas nor Centex CEO Timothy Eller is predicting a turnaround for the industry, builders have rallied in the past month on speculation that lower mortgage rates will help the industry recover. Fixed rates in the U.S. fell to a record low last week of 4.78 percent as the Federal Reserve ramped up purchases of mortgage-backed bonds to support home lending. Falling prices also lured consumers to buy new homes. Purchases of new homes in the U.S. unexpectedly rose in February from a record low, increasing 4.7 percent to an annual pace of 337,000 after a 322,000 rate in January, according to the U.S. Commerce Department. The median sales price fell 18 percent from February 2008, the biggest year-on-year drop since records began in 1964. Bigger Markets The combined companies will sell homes in 59 U.S. markets, be called Pulte Homes and have its headquarters in Bloomfield Hills, Michigan, Dugas said. The deal gives Pulte access to states with stronger new home sales such as Texas and the Carolinas. Dugas will take over as CEO and chairman of the new company while Eller will be vice chairman and a consultant for two years, Eller said in the interview. "We expect opportunities for synergy to be immediate," Eller said. Because of complimentary geographic presence and market segments, the new company will save $350 million annually, Dugas said. That includes $250 million in overhead savings and $100 million in debt-expense relief, according to the statement. Pulte and Centex brands will continue, the CEOs said. Pulte's Del Webb brand for people 55 and over accounts for about half of the company's sales. More Cash The combined companies will have more than $3.4 billion of cash and a market value of $4.1 billion, according to the CEOs. Pulte shareholders would own about 68 percent of the new combined company and Centex shareholders would own 32 percent. Centex is based in Dallas. Eller said he approached Dugas about a merger two months ago because it was "the best way to create the best value for shareholders." "I felt that by moving now we could choose our own partner and create the best combination in the industry," Eller said. "It's a real game-changer." Dugas said he responded to Eller's idea immediately. "We were very excited to talk to a partner we felt was the best strategic fit for Pulte in the industry," Dugas said. "The combination of cultures was ideal. We believe it creates an unrivaled homebuilder. We're very excited and the timeline is evidence of fact that both boards felt this was the right combination." Citigroup Inc., Banc of America Securities, Merrill Lynch & Co. and JPMorgan Securities Inc. advised Pulte. Goldman Sachs & Co. advised Centex.
Search Terms:
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References:
http://www.bloomberg.com/apps/news?pid=20601103&sid=aqhv1iSaaeOk&refer=news,http://www.marketwatch.com/news/story/Alcoa-Pulte-Homes-life-insurers/story.aspx?guid=%7B5680738E-31D0-4C66-8BCC-14476D9B8313%7D,http://www.forbes.com/afxnewslimited/feeds/afx/2009/04/08/afx6268885.html,http://www.bloomberg.com/apps/news?pid=20601087&sid=aK9JST1hOSBs&refer=home,http://www.therealestatebloggers.com/2009/04/08/pulte-homes-and-centex-to-merge-in-billion-dollar-deal/
