Combined company will be one of the top three home builders in 24 of the top 30 U.S. markets
Updated Oct. 30, 2017 11:53 a.m. ET
Under the terms of the agreement, each CalAtlantic share can be exchanged for 0.885 shares of Lennar stock. That represents a 27% premium on CalAtlantic’s shares, based on Friday’s closing price.
The total transaction value of $9.3 billion reported by the companies includes $3.6 billion of net debt assumed.
The deal comes as major home builders are looking to control rising costs for land, labor and materials as the U.S. housing market continues to expand. Builders are increasingly focusing on first-time home buyers purchasing less-expensive homes, putting pressure on profit margins.
Lennar Chief Executive Stuart Miller said the combination will increase Lennar’s presence in markets it already operates in and allow it to be one of the top three home builders in 24 of the top 30 markets in the country.
That would give the combined company more scale and cost efficiencies when negotiating with construction crews and suppliers, analysts said.
“Size helps to better manage land and labor constraints,” wrote Credit Suisse home-building analyst Susan Maklari in a research note Monday. She added that “greater product and geographic breadth allows them to gain share and better meet buyer needs.”
The deal would create a combined company with revenues of more than $17 billion in the past year and a market cap of about $18 billion, based on Friday’s closing share prices.
CalAtlantic shares rose nearly 22.7% late Monday morning. Lennar’s share price was down 3.1%.
The companies expect the deal to generate $250 million in annual cost savings, including roughly $75 million in fiscal 2018.
CalAtlantic shareholders will also have the option to exchange all or a portion of their shares for cash, subject to a maximum cash amount of $1.2 billion, or about 27% of CalAtlantic’s market value.
The deal is subject to approval by shareholders of both companies.
Write to Cara Lombardo at email@example.com
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