Pulte to be largest home builder in U.S. after $1.3B Centex deal

Two home-building giants — Pulte Homes phm and Centex ctx— announced merger plans Wednesday in a bid to ride out the worst housing slump since the Great Depression.

Pulte's $1.3 billion stock offer for Centex would push Pulte ahead of D.R. Horton to make it the nation's largest home builder. The transaction also includes $1.8 billion in debt.

The proposed merger between two of the nation's top five builders may spark further consolidation as home builders try to survive in a market glutted with unsold homes and reeling from falling prices. Builders have seen orders drop 70% since the market peak in 2005, according to the National Association of Home Builders.

Pulte lost about $1.5 billion in 2008.

"This is a complete game-changer in the industry," said Pulte CEO Richard Dugas in an interview. "It positions us to return to profitability. The industry has been having a difficult time … our companies have felt the slump in volume, and profitability has declined. That's why we're so excited to combine and return to profitability."

With Centex, the new Pulte would have $3.4 billion in cash compared with an average $1 billion for the top 13 builders, according to a Gimme Credit report Wednesday.

The companies also expect to pay off $1 billion in debt by year's end. That will save $100 million in interest costs annually, and reducing overhead will save another $250 million a year, the companies said.

Plenty of cash and reduced debt "should secure Pulte's longer-term financial health," wrote Gimme Credit analyst Vicki Bryan.

Some of the expected savings will come from layoffs after the merger is completed, Dugas said. Pulte has about 4,700 employees and Centex has 2,600.

Pulte closed at $9.64, down $1.13, or 10.5% Wednesday. Centex closed at $9.06, up $1.44, or 18.9%.

"From our standpoint, this is the right combination at the right time," Centex CEO Timothy Eller said. "The financial strength will create new opportunities."

Dugas will be chairman, president and CEO of Pulte after the merger. Eller will join the board as vice chairman and will serve as a consultant for two years after the merger is completed.

Under the deal's terms, Centex shareholders will receive 0.975 shares of Pulte common stock for each share of Centex they own. Based on Pulte's closing price Tuesday, the transaction has a value of $10.50 per Centex share.

Pulte shareholders will own about 68% of the new company, and Centex shareholders will own about 32%.

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