Pulte to Acquire Centex for $1.3B

9 04 2009

Pulte Homes is acquiring 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 value of $3.1 billion.

Under the terms of the agreement, Centex shareholders will receive 0.975 of a share of Pulte common stock for each share of Centex they own. The deal, which is scheduled to be completed in the third quarter, would create the nation’s largest homebuilder. The acquisition comes as large homebuilders are struggling in bankruptcies.

Pulte and Centex said the deal should allow for $350 million in annual cost savings and the retirement of $1 billion of debt by the end of 2009. The boards of both companies unanimously approved the merger.

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. Both companies have trimmed local staffs in the last year as new home sales and orders have fallen.

The combined company will use the Pulte name and be based in Bloomfield Hills, Mich., but the firms said a “significant presence” will be maintained in Dallas. Dugas will assume the positions of chairman, president and CEO of the combined company. Current Centex CEO Timothy Eller will join an expanded Pulte board.

“On paper, it’s an excellent deal for Pulte,” said real estate analyst Jack McCabe, CEO of Deerfield Beach-based McCabe Research & Consulting. “Whether it produces positive or negative synergy will depend upon when the housing market awakens from its depression.”

McCabe has seen both companies from the inside. He was an executive with Centex for four years and with Pulte for two years in the mid- to late 1990s.

Pulte and Centex currently build throughout Florida, but Centex pulled out of the North Florida market last year. Pulte is selling homes in eight communities in Jacksonville and Ponte Vedra, the majority of those in Bartram Park.

Real estate analyst Lewis Goodkin, of Miami-based Goodkin Consulting, said “the deal makes a lot of sense to me, and it would never happen when the market was rolling along smoothly.”

Goodkin sees a better fit between Pulte and Centex than many other possibilities, as well as a lot of economies from the deal in everything from purchasing to marketing.

McCabe said Pulte grew by acquisition, with offerings for first-time buyers, move-up buyers, empty-nesters and retirement buyers, while Centex grew by organic growth, with a focus on first-time and move-up buyers.

“It will be interesting to see how the corporate cultures and management teams are integrated,” he said, “because Pulte was managed from the top down, while Centex offered flexibility to local managers to make on the spot marketing decisions.”

McCabe predicted other mergers and acquisitions, as well as bankruptcies ahead among the remaining big homebuilders.

Source: Jacksonville Business Journal

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