Two of the country’s top homebuilders have agreed to merge in a deal valued at $9.3 billion including debt. Lennar Corp. (NYSE: LEN) will pay exchange 0.885 shares of its common stock for each share of CalAtlantic Group Inc. (NYSE: CAA) common stock, a premium of 27% at the implied value of $51.34 per CalAtlantic share based on Friday’s closing price.

CalAtlantic shareholders will have the option to exchange all or a portion of their shares for cash at $48.26 per share, up to a maximum cash payout of approximately $1.2 billion. Excluding debt the value of transaction is approximately $5.7 billion.

Pro forma revenues for the combined companies over the past 12 months total more than $17 billion, with a market cap of about $18 billion. The combined company will control approximately 240,000 homesites and will have approximately 1,300 active communities in 49 markets across 21 states, where approximately 50% of the U.S. population currently lives.

Lennar CEO Stuart Miller said:

This combination is first and foremost to enhance shareholder value. 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.

Last week the U.S. Census Bureau reported that new home sales in September rose to a 10-year high of 667,000 units. Sales were up 19% year over year, the largest monthly increase since January 1992. The inventory of new homes for sale fell to five months at the end of September, down from a six-month supply at the end of August.

The Lennar-CalAtlantic transaction is subject to approval by shareholders of both companies and is expected to close in the first quarter of 2018.

CalAtlantic shares traded up more than 18% in Monday’s premarket session to $47.84, well above the 52-week range of $30.20 to $40.60.

Lennar stock was inactive, having closed at $58.01 on Friday, in a 52-week range of $39.68 to $58.96.

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