In a move that is set to create America's largest homebuilding company, Pulte Homes said it will purchase the nearly 60-year-old Centex Corp. in a $1.3 billion stock-for-stock transaction. The deal, which also includes $1.8 billion in net debt, will result in a combined company that will remain headquartered at Pulte's Bloomfield Hills, Mich, office. Additionally, "the company plans to maintain a significant presence in Dallas" where Centex is based, according to Pulte.
"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 Richard J. Dugas, Jr., Pulte's president and CEO. "Together we will have considerable presence in more than 59 markets across America."
"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," he added.
Under the terms of the agreement, Centex shareholders will receive 0.975 shares of Pulte common stock for each share of Centex they own. Based on the closing price of Pulte stock on April 7, 2009, the transaction has a value of $10.50 per Centex share, representing a premium of 32.6 percent to the 20-day volume weighted average trading price of Centex's shares. The combined company currently would have an equity market capitalization of $4.1 billion and an enterprise value of $7.2 billion. Upon closing of the transaction, Pulte shareholders will own approximately 68 percent of the combined company, and Centex shareholders will own approximately percent.
"Today represents a significant milestone in this industry's history as two leading companies join forces. We share common cultures and rich traditions of delivering quality and value, doing the right thing and exceeding the expectations of our customers. We're proud to begin writing this next chapter together," said Timothy Eller, Centex's chairman and CEO.
"We believe this is the right combination at the right time in the business cycle. By acting decisively now, we're creating unrivaled firepower to capitalize on the opportunities in homebuilding that are now becoming visible on the horizon," he added. "We will have a deeper and more expanded presence that we are confident will allow us to begin realizing the benefits of our combined scale immediately. Moreover, our shareholders will receive an immediate premium for their shares as well as participate in the upside potential of the combined company."
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, resulting from the expected retirement of debt maturities in excess of $1 billion prior to year-end 2009. The company expects to realize a significant portion of the estimated cost savings during the first full year of operations after the transaction is completed, with the full amount realized by the third year. Pulte also expects to realize additional savings opportunities through "production efficiencies and purchasing synergies," the company noted.
Upon completion of the transaction, Dugas will assume the positions of chairman, president and CEO of the newly expanded Pulte Inc. 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 board of directors of Pulte will also be expanded to include four current members from the Centex board, including Eller; as well as eight members of the current Pulte board, including company founder and current Pulte Chairman William J. Pulte.
To guide and ensure a successful transition, a transition executive committee will be formed and will be headed by Dugas and Eller, the company said.
In calendar year 2008, Pulte and Centex delivered more than 39,000 closings with combined pro forma revenues of $11.6 billion. The combined company will have the strongest liquidity position among its peer group with more than $3.4 billion of cash as of March 31, 2009. Pulte and Centex ended March with approximately $1.7 billion of cash each.