Two national homebuilders operating in more than 30 communities in Northeast Florida will join forces, creating the nation’s largest homebuilder, pending shareholder approval.
This week, Lennar Homes announced it is acquiring CalAtlantic Homes in a move characterized by both companies as a cost-saving strategy.
According to a news release issued by both companies, the transaction is valued about $9.3 billion, including $3.6 billion of net debt assumed. The transaction is expected to close in the first quarter of 2018.
Combined, the two companies had more than $17 billion in equity market capitalization in the last 12 months.
They will control about 240,000 homesites nationwide in about 1,300 active communities in 49 markets across 21 states where half of the U.S. population lives.
In Northeast Florida, Lennar is building in 15 neighborhoods, including eight within the Rivertown development in northwestern St. Johns County. CalAtlantic is building in 16 neighborhoods, seven within Nocatee.
According to the release, company officials estimate annual savings of $250 million, after a $75 million reduction in costs in fiscal year 2018.
The savings are expected through reduced overhead and the elimination of duplicate public company expenses.
Additional savings are expected through production efficiencies, technology initiatives and the introduction of Lennar’s digital marketing and dynamic pricing programs.
“This combination is first and foremost to enhance shareholder value,” said Stuart Miller, chief executive officer of Lennar, in the release. “The transaction is accretive before deal costs in fiscal year 2018 and significantly accretive in fiscal year 2019.
The combined company will have a strong balance sheet and generate significant cash flow available to pay down debt and repurchase shares, which will improve returns on capital and equity, said the release.
Under the terms of the agreement, each share of CalAtlantic stock will be converted into the right to receive 0.885 share of Lennar Class A common stock.
Based on the Oct. 27 closing price of Lennar’s Class A common stock, the implied value of the stock consideration is $51.34 per share.
That represents a 27 percent premium to CalAtlantic’s closing price that same day.
CalAtlantic’s shareholders will have the option to exchange all or a portion of their shares for cash at $48.26 per share, subject to a maximum cash amount of $1.2 billion.
CalAtlantic stockholders are expected to own about 26 percent of the combined company.
The transaction is subject to approval by Lennar and CalAtlantic shareholders.
Stuart Miller and the Miller Family Trusts have agreed to vote their 41.4 percent voting interest in Lennar in favor of the merger.
MP CA Homes LLC, an affiliate of MatlinPatterson Global Opportunities Partners III L.P., has agreed to vote its 25.4 percent voting interest in CalAtlantic in favor of the merger.
Upon completion of the transaction, CalAtlantic Executive Chairman Scott Stowell will join the Lennar board of directors.