In From The Cold
Will the Pulte-Centex deal thaw a frozen industry?
When news leaked out late last year that TOUSA was in talks with Standard Pacific about a possible asset sale, some industry watchers must have thought that, finally, an industry with too many builders to begin with, and so many that have failed or are bankrupt, would start to consolidate big time.
But while a few opportunistic companies had seized upon distressed assets, the recession had generated scant merger and acquisition activity on the housing front. That trend seemed to be confirmed when TOUSA and StanPac stopped talking in February.
2009 might tell a different story, especially after Pulte and Centex merged in April, creating what is by far the largest home builder in the country. Those builders’ aggregate $11.6 billion in revenue and 39,000-plus closings last year are double the volume and nearly 40 percent more in closings than what D.R. Horton posted for 2008 and will likely knock it from its top perch in next year’s Builder 100 ranking.
Richard Dugas, Pulte’s chairman and CEO, characterizes this merger as a marriage of remarkably similar builders that, as one, would be able to reduce debt, cut costs, and return to profitability quicker. And while Dugas insists that supersizing Pulte wasn’t what motivated this $3.1 billion deal, the combined company has $3.4 billion in cash to play with and now operates in 59 markets in 29 states and the District of Columbia.
The new Pulte’s home building business also has an estimated $6.2 billion in debt. Its debt and land positions could prevent other besieged builders from finding merger partners. And some analysts still suspect that Pulte-Centex could turn out to be a one-off deal, especially when the market caps of several public builders remain stubbornly below their cash holdings.