Pulte-Centex Create Major Homebuilder Merger (PHM, CTX, XHB)

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Pulte Homes, Inc. (NYSE: PHM) is acquiring Centex Corporation (NYSE: CTX) in a stock-for-stock transaction valued at $3.1 billion, including $1.8 billion of net debt.  The deal has been unanimously approved by both boards of directors.  This is a deal which came out of nowhere, at least as far as the speculation game would have indicated.  Centex common holders will receive 0.975 shares of Pulte common stock for each share, and as April 7, 2009 the transaction has a value of $10.50 per Centex share. This represents a pre-dilution premium of 32.6% to the 20-day volume weighted average trading price of Centex’s shares.

The combined company will have the strongest liquidity position among its peer group with more than $3.4 billion of cash as of March 31, 2009. Pulte and Centex ended March with approximately $1.7 billion of cash each.  In 2008, Pulte and Centex delivered more than 39,000 closings with combined pro forma revenues of $11.6 billion.

The combined company currently would have an equity market capitalization of $4.1 billion and an enterprise value of $7.2 billion. Pulte shareholders will own approximately 68% of the combined company.

The companies expect to retire in excess of 41 billion in debt, and expect to save $350 million per year in efficiencies.

Centex is indicated over $8.00 after a $7.62 close; 52-week range is $4.91 to $26.09.  Pulte is indicated around $10.00 after a $10.77 close; its 452-week range is $6.49 to $17.32.  We will likely see some activity early on in the SPDR S&P Hombuilder (NYSE: XHB) ETF.

Depending upon where these two close and depending on how the other stocks react in the sector, this will be the largest US homebuilder by market cap.  Desperate times calls for desperate measures.

JON C. OGG

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