With the economic downturn threatening the survival of all homebuilders, two of the nation's largest have decided that joining forces will give them the best chance of weathering the storm.
Pulte Homes, Bloomfield Hills, Mich., announced an agreement to merge with Centex Corp., Dallas, in a stock-for-stock transaction valued at $3.1 billion, comprising $1.3 billion in equity and $1.8 billion in debt. The combined company would become the largest homebuilder in the United States.
Combined, the companies accounted for $11.6 billion in sales and 39,000 home closings in 2008. The merged company will operate under the Pulte name, be based in Pulte's headquarters in Michigan, and be led by Pulte President and Chief Executive Richard Dugas Jr.
In a joint release announcing the deal, Pulte and Centex said the merger would allow the companies to move forward with a cash stockpile of $3.4 billion. The combined company would have an equity market capitalization of $4.1 billion with Pulte shareholders owning approximately 68 percent of the company and Centex shareholders the other 32 percent.
The two companies have been savaged by the housing bubble's collapse. In the fiscal quarter ended Dec. 31, 2008, Centex reported a net loss of $976 million and Pulte a loss of $338 million, which translated to year-over-year earnings declines of 49 percent and 37 percent, respectively, according to Builder magazine.
“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 Dugas. “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 combination will also allow us to capitalize on the opportunities presented by the addition of Centex's land positions to Pulte's, including Centex's sizable holdings in both Texas and the Carolinas, two areas that continue to exhibit strength in the face of today's difficult housing market.”
The merger is the largest among homebuilders since the downturn began. The impact on the electrical industry's residential-oriented manufacturers and distributors may be substantial, as the companies are looking to purchasing synergies for some of the efficiency gains and cost savings the deal could produce.
Pulte expects that efficiency gains and other savings from this transaction should generate cost reductions of approximately $350 million annually, consisting of approximately $250 million in overhead savings and $100 million in debt expense relief. Pulte also expects to realize additional savings opportunities through production efficiencies and purchasing synergies, the release said.