Pulte Homes To Buy Centex For $3.1B

Despite the worst housing slump in decades, Pulte Homes Inc. agreed Wednesday, April 8, to acquire Centex Corp. for $3.1 billion in stock and assumed debt to create the country's biggest homebuilder. The transaction values Centex's equity at $1.3 billion and includes $1.8 billion of debt, the companies said in a statement. Centex shareholders will receive 0.975 of a Pulte common share for each Centex share they own.

Based on Pulte's closing price Tuesday of $10.77, the deal values each Centex share at $10.50, a 38% premium over Centex's closing price Tuesday of $7.62. Pulte shareholders will own about 68% of the combined company, while Centex's will own about 32%. The combined business will also have a strong liquidity position, with more than $3.4 billion in cash as of March 31, the statement said.

The deal also will give Pulte access to states with stronger new home sales, including Texas and the Carolinas. ??Combining these two industry leaders with proud legacies into one company puts us in an excellent position to navigate through the current housing downturn, poised to accelerate our return to profitability,?? said Pulte president and CEO Richard J. Dugas Jr. in the statement.

Centex's significant presence in the entry level and move-up categories is complemented by Pulte's strength in both the move-up and active adult segments, the latter through our popular Del Webb brand,?? he added. The combined company will be the largest U.S. homebuilder by market capitalization and volume. Pulte, the nation's fourth-largest homebuilder, and Centex, with the No. 3 position, said the combined company would have a market cap of $4.1 billion, surpassing that of D.R. Horton Inc., the largest homebuilder by volume, with a market cap of $3.4 billion.

The companies also envision $350 million a year in savings, including $250 million from overheads and $100 million in debt expenses. Centex chairman and chief executive Timothy Eller said the deal is the right combination at the right time. By acting decisively now, we're creating unrivaled firepower to capitalize on the opportunities in homebuilding that are now becoming visible on the horizon.

The new homebuilder will use the Pulte name and be based in the buyer's hometown of Bloomfield Hills, Mich. The companies said the business plans to maintain a significant presence in Dallas, where Centex is based. Dugas will assume the positions of chairman, president and chief executive. Eller will join the board of directors of Pulte as vice chairman and will serve as a consultant to the company for two years following the close of the transaction.

The deal is expected to close in the third quarter, pending the approval of Pulte and Centex shareholders and antitrust regulators. Certain Pulte and Centex officers and directors, including company founder and chairman William J. Pulte, have agreed to vote their shares in favor of the transaction, which is intended to qualify as a tax-free reorganization for federal income tax purposes.

Pulte tapped Citigroup Inc. as lead financial adviser along with Banc of America Merrill Lynch and J.P. Morgan Securities Inc. Sidley Austin LLP provided Pulte with legal counsel. Centex turned to Goldman, Sachs & Co. for financial advice and Wachtell, Lipton, Rosen & Katz acted as legal adviser.