Sun Sentinel Palm Beach Edition
Home builder Lennar plans $6 billion merger
Miami-based home builder Lennar Corp. announced a plan Monday to merge with Virginia competitor CalAtlantic, creating the nation’s largest home-building company by revenue.
Together, the companies would have more than $17 billion in annual revenues. Lennar and CalAtlantic build homes in 49 markets across 21 states, a total of 240,000 home sites.
Lennar and CalAtlantic are combining in a hot housing market, where Lennar said it will be able to drive down labor and other costs to become more profitable. Labor cost concerns have cut across the construction industry as builders in both the residential and commercial real estate sectors compete for a shallow pool of skilled workers.
“We can garner efficiencies through a combination of the products we’re familiar with … We’ll be able to drive costs down and improve margins,” said Stuart Miller, CEO, on a conference call with Wall Street analysts on Monday.
Lennar and CalAtlantic build in 31 of the same markets across the country, but CalAtlantic will bring new markets including Salt Lake City and Indianapolis. CalAtlantic also has a stronger presence in Chicago and California, Lennar’s top executives said.
“What we’re trying to do is become the builder of choice in each of our markets,” said Rick Beckwitt, Lennar’s president. “The blend of the price point brands is powerful.”
The stock and cash portion of the deal is worth $5.7 billion. Each company’s board has approved a definitive merger agreement where each share of CalAtlantic stock would be exchanged for 0.885 shares of Lennar Class A common stock in a transaction valued at about $9.3 billion, which includes the assumption of $3.6 billion in debt.
Stockholders of CalAtlantic, which is based in Arlington, Va., are expected to own 26 percent of the combined company, if the merger is cleared by the Federal Trade Commission and approved by both companies’ 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.
The transaction is expected to close in the first quarter of 2018, the companies said. Earlier this year, Lennar closed on a deal to buy rival WCI Communities.
The companies said the transaction will generate a total of $250 million in cost savings that include reduced overhead costs and elimination of duplicate public company expenses.
Larry Nicholson, CEO of CalAtlantic, said Lennar is “a well-respected name in the home-building industry.” He said CalAtlantic and Lennar share a commitment to innovation and quality.
Lennar’s stock closed Monday at $55.68 a share, down $2.33 or 4.02 percent in New York Stock Exchange trading. CalAtlantic stock jumped more than 21 percent or $8.67 to $49.07 on the NYSE.
The market value of the transaction is estimated at $51.34 a share.
Lennar was founded as a local Miami home builder in 1954. The company completed its initial public offering in 1971. During the 1980s and 1990s, Lennar expanded in home building markets including California, Florida and Texas.
In 2016, Lennar delivered 26,563 new homes, according to its annual report. The average home sales price was $361,000, up from $344,000 in 2015.