Wednesday, April 8, 2009

Consolidation in the Housing Sector: Pulte Homes (PHM) Buys Centex (CTX)

I will have a piece out later in the day explaining why I believe the "housing recovery" will be a long, drawn out process... it would appear from the consolidation that is finally occuring, the home builders are seeing the writing on the wall. Another "merger of equals"... Pulte Homes (PHM) and Centex (CTX); certainly CTX benefits share price wise today. As two of the larger players in a very fragmented field it is amazing that the combination is only $1.3 billion.... relative peanuts.

This will now be the largest homebuilder in America
  • In calendar 2008, the two companies combined delivered more than 39,000 homes. The largest U.S. builder, D.R. Horton Inc. (DHI) delivered more than 26,000 homes in its fiscal year ended Sept. 30, 2008.
I had closed out a very small Pulte Homes short position a few days ago. (too bad)
  • Pulte Homes Inc. agreed to acquire Centex Corp. Wednesday in a stock-for-stock deal valued at $1.3 billion that will create the nation's largest homebuilding company. The transaction, which also includes $1.8 billion of debt, will give the combined business a strong liquidity position with more than $3.4 billion in cash as of March 31.
  • The pairing of Pulte and Centex comes at a time when homebuilders are still struggling to find their footing as credit remains tight and buyers continue to be leery of big-ticket purchases. The industry in turn has attempted to stem the bleeding by drastically scaling back new construction and throwing more incentives at potential buyers in order to unload existing inventory.
  • 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. Shares of Centex soared $1.76, or 23.1 percent, to $9.38 in premarket activity, while Pulte stock sank 96 cents, or 8.9 percent, to $9.81.
  • While the transaction is geared toward helping the companies make their way out of the housing downturn, it also is expected to save Pulte about $350 million a year. That includes $250 million in overhead costs and $100 million from the anticipated retirement of more than $1 billion in debt by the end of the year.
No position

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