11:50AM New York – Pulte Homes and Centex, two of the nation’s largest home builders agreed to merge. Centex surges 22% after the deal announcement.
Home builders are facing two years of collapse in new home sales have finally began to consolidate. The proposed merger between Pulte Homes and Centex will create the largest home builder with market capitalization of $4.1 billion.
In a transaction of $1.3 billion stock exchange will also involve assumption of $1.8 billion of debt by the newly merged company.
The combined company will have $3.4 billion in cash as of end of March and pro forma revenues of $11.6 billion. On a pro forma basis the two companies closed 39,000 home sales in 2008.
The deal is approved unanimously by both company boards and certain large shareholders of both companies. But the merger still needs shareholder approval.
Under the terms of merger Centex shareholders will receive 0.975 shares of Pulte common stock. The deal is based on the Pulte stock closing price on April 7, 2009 that values Centex share at $10.50, representing 33% premium.
The combined company expects to save $350 million of which $250 million will be from operation and overhead related expenses and $100 million in debt-expenses.
Centex is known for its first time buyer homes and first move-up homebuyer focus and Pulte is known for its broader range of home offering with a focus on 55-plus adult communities.
The combined company will have equity market capitalization of $4.1 billion and $7.2 billion and upon closing of the deal Pulte shareholders will own 68% of newly merged company and Centex shareholders will own 32%.
Chief executive of Pulte, Richard J. Dugas Jr. will be the chairman, president and chief executive of the merged company and Centex chairman and chief executive Timothy Eller will be vice chairman and act as a consultant for two years.
Pulte Homes has $700 million in debt that is retiring in 2011 and $300 million 2013.
Pulte was advised for the deal by Citi group, Banc America Securities, Merrill Lynch and
JP Morgan Securities. To Centex Goldman Sachs acted as financial advisor.
Both home builders have been operating since 1950. Pulte Homes, Inc is based in Bloomfield, Michigan and Centex is based Dallas, Texas. Pulte home communities are large based in Florida, North East states and in California. Centex communities are located in California, Texas and Mid-Atlantic states. Home markets in Texas and in Carolinas are relatively healthier than the rest of the national markets.
After the news of the deal, Pulte Homes (PHM
) declined 8.5% or 92 cents to $9.85 and Centex (CTX
) surged 22% or $1.73 to $9.35.
Single family home starts reaches peak of 1.9 million homes in 2006 and since then have fallen to 0.4 million in 2009 and percentage of mortgage loans in foreclosure has surged 3% in 2008. Sales of Pulte Homes in 2008 plunged 55% to $15.31 billion and at Centex dived 53% to $14.72 billion.
Sales at top ten home builders in 2008 have collapsed from as high as 70% at MDC and as low as 34% at NVR.
With nearly 1 million immigrants admitted to the U.S., the population is expected to surpass 400 million by 2040 according to the U.S. Census Bureau.
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