Pulte-Centex Create Major Homebuilder Merger (PHM, CTX, XHB)

By Douglas A. McIntyre Updated Mar 23, 1:32PM EDT · Published Apr 8, 5:16AM EDT

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Pulte Homes, Inc. (NYSE: PHM) is acquiring Centex Corporation (NYSE: CTX) in a stock-for-stock transaction valued at $3.1 billion, including $1.8 billion of net debt. The deal has been unanimously approved by both boards of directors. This is a deal which came out of nowhere, at least as far as the speculation game would have indicated. Centex common holders will receive 0.975 shares of Pulte common stock for each share, and as April 7, 2009 the transaction has a value of $10.50 per Centex share. This represents a pre-dilution premium of 32.6% to the 20-day volume weighted average trading price of Centex’s shares.

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. In 2008, Pulte and Centex delivered more than 39,000 closings with combined pro forma revenues of $11.6 billion.

The combined company currently would have an equity market capitalization of $4.1 billion and an enterprise value of $7.2 billion. Pulte shareholders will own approximately 68% of the combined company.

The companies expect to retire in excess of 41 billion in debt, and expect to save $350 million per year in efficiencies.

Centex is indicated over $8.00 after a $7.62 close; 52-week range is $4.91 to $26.09. Pulte is indicated around $10.00 after a $10.77 close; its 452-week range is $6.49 to $17.32. We will likely see some activity early on in the SPDR S&P Hombuilder (NYSE: XHB) ETF.

Depending upon where these two close and depending on how the other stocks react in the sector, this will be the largest US homebuilder by market cap. Desperate times calls for desperate measures.

JON C. OGG

About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.