Pulte Homes Inc. is buying Centex Corp.for $1.3 billion in stock as both companies try to survive the worst real estate recession in a generation.
The transaction, which also includes $1.8 billion of debt, 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. But Wall Street analysts are concerned about the risk of
taking on so much land in other areas where home prices are still
The new company, which will keep the Pulte name and headquarters
in Bloomfield Hills, Mich., will have cash reserves totaling $3.4
billion and pay off $1 billion in debt by the end of the year.
"We believe the combined companies will allow us to return to
profitability quicker than a standalone. Secondly, the cash
position allows us to pay down debt while at the same time provide
ample liquidity for the future," said Richard Dugas Jr., said
Pulte's president and chief executive, who retain those titles over
the combined enterprise.
Centex's chairman and chief executive, Timothy Eller, will
become Pulte's vice chairman and will also work as a consultant for
two years following the acquisition's completion.
The pairing of Pulte and Texas-based Centex comes at a time when
homebuilders are still struggling to find their footing as credit
remains tight and potential customers remain leery of buying a home
in the face of rising unemployment. The industry in turn has
attempted to stem the bleeding by drastically scaling back new
construction and slashing prices to unload existing inventory.
Combining their operations the two companies will save about
$350 million a year, including $250 million in overhead. There will
be layoffs, but Dugas said it was too early to predict how many.
As part of the deal, Centex shareholders will receive 0.975
shares of Pulte 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.
The companies called the deal a merger, but Pulte stockholders
will own about 68 percent of the combined business and Centex
shareholders will own the remaining 32 percent.
Shares of Centex soared $1.76, or 23 percent, to $9.38 in
premarket activity, while Pulte stock sank 96 cents, or about 9
percent, to $9.81.
Centex had approximately 124.4 million shares outstanding for
the quarter ended Dec. 31, 2008.
Pulte and Centex contend that the deal will help them capitalize
on what the executives see as the beginning of a recovery in the
Last month the Commerce Department said new home sales climbed
almost 5 percent from January to February, providing some hope that
the sales may have reached a bottom.