Tim­ing is right for merger, Stan­dard Pa­cific CEO says

Los Angeles Times - - BUSINESS - By James F. Peltz

More than once, the chief ex­ec­u­tives of South­ern Cal­i­for­nia home builders Stan­dard Pa­cific Corp. and Ry­land Group Inc. talked about whether they should com­bine their oper­a­tions.

“We have from time to time en­gaged in dis­cus­sions about the value that would be avail­able to share­hold­ers” with a merger, Stan­dard Pa­cific Chief Ex­ec­u­tive Scott Stow­ell told an­a­lysts Mon­day.

With the U.S. hous­ing mar­ket re­cov­ery gain­ing strength, Stow­ell and his Ry­land coun­ter­part, Larry Ni­chol­son, de­cided to pull the trig­ger.

Stan­dard Pa­cific and Ry­land on Sun­day night an­nounced a $5.2-bil­lion “merger of equals” to cre­ate the na­tion’s fourth-largest home builder with oper­a­tions in 17 states and an­nual rev­enue of $5.1 bil­lion.

The com­pa­nies, which sold a com­bined 12,633 houses last year, acted now be­cause they see the po­ten­tial for more match-ups among U.S. home builders and pre­ferred to choose their own part­ners.

“There may be more con­sol­i­da­tion in our in­dus­try

over time, and ... wait­ing would have risked our chance of choos­ing what we be­lieve is the best pos­si­ble com­bi­na­tion for our stock­hold­ers,” Stow­ell told the an­a­lysts.

The merger also would give the newly com­bined com­pany a more di­verse prod­uct line, from en­try-level to lux­ury houses, and wider ge­o­graphic reach with lit­tle over­lap.

“We’ve ad­mired and re­spected our com­pa­nies for a very long time” and are con­fi­dent “we can cap­i­tal­ize on this home-build­ing re­cov­ery,” Stow­ell said. “We re­ally think that to­gether, we’re bet­ter.”

In­vestors ini­tially agreed as prices of both com­pa­nies’ stocks, which will be ex­changed to com­plete the deal, rose Mon­day in re­sponse to the an­nounce­ment.

Stan­dard Pa­cific gained 47 cents, or 5.6%, to $8.83 a share, while Ry­land rose $2.23, or 5.2%, to $45.02 a share.

Shares of some other lead­ing home builders, in­clud­ing Lennar Corp. and Pul­teGroup Inc., also rose mod­estly Mon­day while the stock mar­ket over­all suf­fered a broad loss.

The merger plan comes as the U.S. hous­ing mar­ket ex­tends its slow re­bound from the se­vere re­ces­sion.

New-home sales rose 6.8% in March to a sea­son­ally ad­justed an­nual rate of 517,000, the Com­merce Depart­ment said last month. Prices also in­creased, re­flect­ing higher de­mand and lim­ited sup­plies.

And con­fi­dence among the na­tion’s home builders in June rose to its high­est level in nine months, the Na­tional Assn. of Home Builders said Mon­day.

Ry­land, based in West­lake Vil­lage, builds mostly lower-priced homes in states such as Cal­i­for­nia, Ge­or­gia, Penn­syl­va­nia, New Jersey and Texas. The com­pany sold 7,677 houses last year and gen­er­ated rev­enue of $2.6 bil­lion.

Irvine-based Stan­dard Pa­cific, with rev­enue of $2.4 bil­lion last year, mainly builds up­scale homes in Cal­i­for­nia, Texas, Florida and the Caroli­nas.

Stan­dard Pa­cific’s av­er­age selling price last year was $478,000. Among the op­tions it of­fers: A re­cent de­vel­op­ment in Brea in­cluded a 170square-foot “pet suite” in the homes.

For both com­pa­nies, the merger is “a great op­por­tu­nity to buy a lot of land for growth in one fell swoop” at a time when “it’s be­come in­creas­ingly dif­fi­cult to buy land in ap­peal­ing lo­ca­tions … at prices that make sense,” real es­tate con­sul­tant John Burns said.

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