Pulte Homes to buy Centex in $1.3B deal - East Valley Tribune: News

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Pulte Homes to buy Centex in $1.3B deal

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Posted: Wednesday, April 8, 2009 12:13 pm

Pulte Homes Inc. is buying Centex Corp. for $1.3 billion in stock in a deal that will create the nation's largest homebuilder amid 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 home buyers. 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.

Other builder consolidations are sure to follow as the new housing market begins slowing moving toward recovery because "it's time for the smartest of the smart to get things moving," said Valley housing analyst RL Brown.

"This is the time that the most financially capable companies can do this kind of thing," he said. "They've got their competition, so as the market continues to recover there will be less competition to deal with. It's good for the market to have healthy players."

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 retains those titles over the combined enterprise.

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.

Pulte has a much larger presence in Arizona and the East Valley than Centex. Pulte has 18 communities across the East Valley, while Centex has two communities in Queen Creek.

Statewide, Pulte has nearly 600 employees, said Jacque Petroulakis, Southwest spokeswoman for Pulte Homes & the Communities of Del Webb. In addition to home building, it has a national call center in Phoenix and a national home office in Tempe.

"This definitely poises us to accelerate our return to profitability and puts us in an excellent position to navigate through the current housing downturn," she said. "It would be too premature to talk about any operational efficiencies that would occur before the time of the close."

In the Valley, Centex has 55 employees and a division office in Scottsdale.

"For now it's too early to discuss the effect of the merger on our operations in Arizona," said David Webster, Centex spokesman. "This announcement signals we are creating one of the strongest and best-positioned homebuilders in the nation, and that should have many long-term benefits for the markets where we build homes and for our customers."

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

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 12 months, compared with 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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