Lennar and CalAtlantic enter $5.7 billion deal create the US’s largest homebuilder

Nov.12, 2017 | by Naanga

BEIJING, China — Lennar, the second-largest home builder in the United States, agreed Monday to pay $9.3 billion to acquire CalAtlantic. The stock-and-cash deal, valued at $51.34 per share, a 27 percent premium from Friday’s closing price, includes the assumption of $3.6 billion of CalAtlantic’s debt.

The business combination will create the largest homebuilder which control almost a quarter of a million homesites across 21 states in the United States. By combining, Lennar and CalAtlantic Group are expected to save costs of $75 million next year and $250 million in 2019.  “We anticipate about $165 million of cost savings in 2019 and an aggregate saving including SG&A of about $150 million,” said Stuart Miller, Chief Executive Officer of Lennar.

 

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Photo from Lennar INC

 

“Accordingly, our overall company size and local critical mass will yield significant benefits through efficiencies in purchasing, access to land, labor and overhead allocation to a greater number of deliveries. The combined land portfolio will position the company for strong profitability for years to come, as we continue to benefit from a solid homebuilding market, supported by job and wage growth, consumer confidence, low levels of inventory, and a production deficit,” he added.

As a larger company, market cap of roughly $18 billion and revenues over $17 billion, as possible to deal with better prices for materials and workforce. The transaction is a game-changer on the construction while the shortage of skilled workers is a central challenge of the construction industry, according to the survey of Associated General Contractors of America (AGC). 

“From a home buyer’s perspective it could be a very positive thing,” said David Siegel, executive director of Housing First Minnesota at the Star Tribune. “This new enterprise probably has the capability of addressing some of the affordability challenges.”

CalAtlantic investors are expected to own about 26 percent of the new company. The stockholders will also have an option to change their shares for cash of $48.26 per share, submit to a maximum cash amount of roughly $1.2 billion, the companies reports.

“Underscores the quality and attractiveness of the CalAtlantic brand and people, and the business our talented team has worked hard to build,” said Larry Nicholson, President and CEO of CalAtlantic.

After the announcement, CalAtlantic’s shares jumped 21.3 percent to $49 while Lennar’s stocks decreased 4 percent at $55.6.  The deal, after the approvals of both companies stockholders, is expected to close in the first quarter of next year, the companies said. Mr Stowell, CalAtlantic’s Executive Chairman, will join the Lennar Board of Directors, according to the companies press release.

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