Pulte Homes to buy Centex for $1.3B


POSTED: Thursday, April 09, 2009

NEW YORK » Pulte Homes Inc. is buying Centex Corp. for $1.3 billion in stock in a deal that will create the nation's largest homebuilder that caters to everyone from first-time homebuyers to grandparents looking to move into retirement communities.





        Centex has five combined properties on Oahu and the Big Island.

        » Beach Villas at Ko Olina
        » Ko Olina Kai
        » Ko Olina Hillside Villas


Big island
        » Kolea
        » Halii Kai




The acquisition also will give Pulte large tracts of land in Texas and the Carolinas, two of the most resilient real estate markets, and a presence in 29 states, including Hawaii, and Washington, D.C.

The new company, which will also include the Del Webb, DiVosta and Fox & Jacobs brand homes, will keep the Pulte name and headquarters in Bloomfield Hills, Mich. There will be an unspecified number of job cuts.

“;It allows us to not only survive, but thrive in any economic climate,”; said Richard Dugas Jr., Pulte's president and chief executive, who retain those titles over the combined enterprise.

Centex's operations in Hawaii and Portland were the only two markets in the Northwest region to generate operating earnings in the fiscal year ended March 31, 2008.

Centex Destination properties sell luxury second home and resort properties on the Big Island and Oahu.

The deal underscores the tough choices homebuilders across the industry have to make in the face of brutal market conditions. New home sales are down 76 percent from their peak in mid-2005, and nearly every builder is hoarding cash or looking for a lifeline.

Pulte built 45,630 homes in 2005 and Centex 37,022. Last year, both companies built less than half those levels, and have slashed construction and prices to stem the red ink.

Pulte lost almost $3.73 billion over the past two years, more than wiping out all of its profits for the prior three years. Centex lost $2.66 billion last year, erasing its earnings for the prior four years.

The worst housing recession since the Great Depression has toppled many homebuilders, and Centex Chairman and Chief Executive Timothy Eller was determined his Texas-based company wasn't going to be among them.

So, two months ago he picked up the phone and called Dugas.

“;Richard agreed that this would be a very strong combination, very complimentary. As you can tell, it's moved quite swiftly since that first initial call,”; said Eller, who will become Pulte's vice chairman and will work as a consultant for two years following the acquisition's completion.

The combined company will have twice the revenue of its next largest rival, D.R. Horton Inc. Pulte and Centex pulled in a total of $11.61 billion in the last twelve months, compared to D.R. Horton's $5.82 billion.

“;Clearly, industry consolidation was inevitable at some point ... we are by far the two most similar companies in homebuilding,”; Dugas said.

Integrating Centex's operations will save Pulte $350 million a year. The new company will have $1.8 billion in debt and cash reserves totaling $3.4 billion. The company will pay off $1 billion in debt by the end of the year.

The new industry behemoth will be better poised to take advantage of the market's recovery, which executives said is just beginning.

Data released yesterday showed loan applications to purchase a home rose 11 percent last week. And new home sales climbed almost 5 percent from January to February, providing some hope that the sales may have reached a bottom.

But the recovery could be choppy depending on the length and depth of the nation's recession.

“;It is pretty bad out there,”; said Robert Curran, an analyst with Fitch Ratings. “;Does this prevent things from getting worse at the new Pulte? No.”;

Wall Street analysts also are concerned about the risk of taking on so much land in other areas where home prices are still plummeting, including Sacramento and Riverside, Calif.