NEW YORK - In a deal that will create the nation's biggest homebuilder, Pulte Homes Inc. is buying Centex Corp. for $1.3 billion in stock as both companies try to survive the worst real estate recession in a generation.
The transaction, which also includes $1.8 billion of debt, will combine Pulte's strength in active-adult and retirement housing with Centex's hefty market share of first-time homebuyers.
The acquisition also will give Pulte large tracts of land in Texas and the Carolinas, two of the most resilient real estate markets. But Wall Street analysts are concerned about the risk of taking on so much land in other areas where home prices are still plummeting.
The new company, which will keep the Pulte name and headquarters in Bloomfield Hills, Mich., will have cash reserves totaling $3.4 billion and pay off $1 billion in debt by the end of the year.
"We believe the combined companies will allow us to return to profitability quicker than a standalone. Secondly, the cash position allows us to pay down debt, while at the same time provide ample liquidity for the future," said Richard Dugas Jr., Pulte's president and chief executive, who will retain those titles in the combined enterprise.
The pairing of Pulte and Texas-based Centex comes as homebuilders are still struggling to find their footing as credit remains tight and potential customers remain leery of buying a home in the face of rising unemployment. The industry has attempted to stem the bleeding by drastically scaling back new construction and slashing prices to unload existing inventory.
By combining their operations, the companies will save about $350 million a year, including $250 million in overhead. There will be layoffs, but Dugas said it is too early to predict how many.
