Pulte Homes agrees to buy Centex in $1.3B deal

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Source: http://www.wtop.com/?nid=111&sid=1644947

April 8, 2009 – 12:08pm

AP Real Estate Writer

NEW YORK (AP) – Pulte Homes Inc. is buying Centex Corp. for $1.3 billion in stock in a deal that will create the nation’s largest homebuilder and could spark further consolidation in an industry that is suffering the worst real estate recession in a generation.

The transaction will combine Pulte’s strength in active-adult and retirement housing with Centex’s hefty market share of first-time homebuyers. The acquisition also will give Pulte large tracts of land in Texas and the Carolinas, two of the most resilient real estate markets, and a presence in 29 states and Washington, D.C.

The new company, which will also include the Del Webb, DiVosta and Fox & Jacobs brand homes, will keep the Pulte name and headquarters in Bloomfield Hills, Mich. There will be an unspecified number of job cuts.

"It allows us to not only survive, but thrive in any economic climate," said Richard Dugas Jr., Pulte’s president and chief executive, who retain those titles over the combined enterprise.

Faced with a 75 percent slide in new home sales from the peak in mid-2005, home builders have slashed construction and prices but have been slow to join forces. Wednesday’s deal touched off investors speculation that other homebuilders with battered stock prices may be easy targets.

Shares of Beazer, Lennar and Hovnanian all jumped than 7 percent in midday trading.

This deal "is a game-changer, pure and simple," said Centex Chairman and Chief Executive Timothy Eller, who will become Pulte’s vice chairman and will work as a consultant for two years following the acquisition’s completion.

The combined company will have twice the revenue of its next largest rival, D.R. Horton Inc. Pulte and Centex pulled in a total of $11.61 billion in the last twelve months, compared to D.R. Horton’s $5.82 billion.

The new industry behemoth will be better poised to take advantage of the market’s recovery, which executives said is just beginning.

On Wednesday, new data showed loan applications to purchase a home rose 11 percent last week. And new home sales climbed almost 5 percent from January to February, providing some hope that the sales may have reached a bottom.

Integrating Centex’s operations will save Pulte $350 million a year. The new company will have $1.8 billion in debt and cash reserves totaling $3.4 billion. The company will pay off $1 billion in debt by the end of the year.

But Wall Street analysts are concerned about the risk of taking on so much land in other areas where home prices are still plummeting, including Sacramento and Riverside, Calif., and Cape Coral, Fla.

Pulte lost almost $3.73 billion over the past two years, more than wiping out all of its profits for the prior three years. Centex lost $2.66 billion last year, erasing its earnings for the prior four years.

Shares in both companies have lost more than half their value from their 52-week highs last year.

Pulte is offering Centex shareholders 0.975 shares of its common stock for each share of Centex that they own. The transaction is valued at $10.50 per Centex share based on Pulte’s Tuesday closing stock price of $10.77. That represents a 38 percent premium to Centex’s closing price of $7.62 Tuesday.

Pulte stockholders will own about 68 percent of the combined business and Centex shareholders will own the remaining 32 percent.

Shares of Centex soared $1.81, or 24 percent, to $9.44, while Pulte stock sank 82 cents, or about 7 percent, to $9.95.

Centex had approximately 124.4 million shares outstanding for the quarter ended Dec. 31, 2008.

__

AP Business Writer Michelle Chapman in New York contributed to this story.

(Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.)
By J.W. ELPHINSTONE
AP Real Estate Writer

NEW YORK (AP) – Pulte Homes Inc. is buying Centex Corp. for $1.3 billion in stock in a deal that will create the nation’s largest homebuilder and could spark further consolidation in an industry that is suffering the worst real estate recession in a generation.

The transaction will combine Pulte’s strength in active-adult and retirement housing with Centex’s hefty market share of first-time homebuyers. The acquisition also will give Pulte large tracts of land in Texas and the Carolinas, two of the most resilient real estate markets, and a presence in 29 states and Washington, D.C.

The new company, which will also include the Del Webb, DiVosta and Fox & Jacobs brand homes, will keep the Pulte name and headquarters in Bloomfield Hills, Mich. There will be an unspecified number of job cuts.

"It allows us to not only survive, but thrive in any economic climate," said Richard Dugas Jr., Pulte’s president and chief executive, who retain those titles over the combined enterprise.

Faced with a 75 percent slide in new home sales from the peak in mid-2005, home builders have slashed construction and prices but have been slow to join forces. Wednesday’s deal touched off investors speculation that other homebuilders with battered stock prices may be easy targets.

Shares of Beazer, Lennar and Hovnanian all jumped than 7 percent in midday trading.

This deal "is a game-changer, pure and simple," said Centex Chairman and Chief Executive Timothy Eller, who will become Pulte’s vice chairman and will work as a consultant for two years following the acquisition’s completion.

The combined company will have twice the revenue of its next largest rival, D.R. Horton Inc. Pulte and Centex pulled in a total of $11.61 billion in the last twelve months, compared to D.R. Horton’s $5.82 billion.

The new industry behemoth will be better poised to take advantage of the market’s recovery, which executives said is just beginning.

On Wednesday, new data showed loan applications to purchase a home rose 11 percent last week. And new home sales climbed almost 5 percent from January to February, providing some hope that the sales may have reached a bottom.

Integrating Centex’s operations will save Pulte $350 million a year. The new company will have $1.8 billion in debt and cash reserves totaling $3.4 billion. The company will pay off $1 billion in debt by the end of the year.

But Wall Street analysts are concerned about the risk of taking on so much land in other areas where home prices are still plummeting, including Sacramento and Riverside, Calif., and Cape Coral, Fla.

Pulte lost almost $3.73 billion over the past two years, more than wiping out all of its profits for the prior three years. Centex lost $2.66 billion last year, erasing its earnings for the prior four years.

Shares in both companies have lost more than half their value from their 52-week highs last year.

Pulte is offering Centex shareholders 0.975 shares of its common stock for each share of Centex that they own. The transaction is valued at $10.50 per Centex share based on Pulte’s Tuesday closing stock price of $10.77. That represents a 38 percent premium to Centex’s closing price of $7.62 Tuesday.

Pulte stockholders will own about 68 percent of the combined business and Centex shareholders will own the remaining 32 percent.

Shares of Centex soared $1.81, or 24 percent, to $9.44, while Pulte stock sank 82 cents, or about 7 percent, to $9.95.

Centex had approximately 124.4 million shares outstanding for the quarter ended Dec. 31, 2008.
 

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