At home with each other


The foundation for the first of what could be a wave of deals in the badly beaten up homebuilding sector may in some ways have been laid in industry conferences and other interactions between chief executives.

Centex Chief Executive Timothy Eller and Pulte’s Richard Dugas have known each other for a long time and the possibility of a transaction was not new, people familiar with the matter said. 

Eller and Dugas did not discuss any specific terms when they talked about a deal earlier, but when talks began in earnest some two months ago an agreement was reached fast, one of the sources said. 

Pulte agreed to buy Centex for $1.3 billion in an all-stock deal that would create the largest U.S. homebuilder. 

Centex had been conducting an internal review and spoke to other parties as well but finally settled on Pulte, according to these sources.  

Pulte’s Puny Pole Position

CALIFORNIA-PROPERTYIn what might have been a $10 billion blockbuster deal just a couple of years ago, homebuilder Pulte said it would buy rival Centex for $1.3 billion. In more basic metrics, No. 4 is buying No. 3 to become No. 1.

At first blush, the premium looks like it might be enticing enough, at nearly 40 percent over Centex’s closing price on Tuesday. Certainly, for a sector as distressed as home building, any premium at all will be welcome to anyone not buying into a couple of months of data vaguely suggesting a bottom may have been reached. But Centex shareholders are getting Pulte stock, so they’d still have to sell to lower their exposure to the sector.

Distressed sectors are natural fodder for all-stock deals, giving companies an easier means to rationalize costs than trying to get loans out of the distressed banking sector. Pulte takes on $1.8 billion of Centex debt for the price of becoming top dog. While it’s hard to imagine the bottom being very far away for homebuilders, getting investors to build positions in a real estate recovery might yet require a stronger macroeconomic foundation.