10 April 2009

Pulte (owner of Del Webb brand) dilutes concentration on Active Adult sector

April 8, 2009
Pulte-Centex deal prompts hope, wariness

News of the merger of Pulte Homes Inc. and Centex Corp. to create the nation’s largest homebuilder was met with optimism and caution Wednesday.

One analyst even saw it as a liquid Pulte coming to a debt-heavy Centex’s rescue.

“We view this deal as a necessary and positive step for CTX given its 56% leverage, $1.2 billion debt maturities over the next three years and our expectation for weak cash flow,” wrote housing analyst Daniel Oppenheim at Credit Suisse in a note to investors Wednesday.

The combined business has more than $3.4 billion in cash as of March 31, the companies said, and $1.8 billion in debt.

Oppenheim also notes that the combined company would have eight years worth of land based on an estimated 20,000 home sales for both this year.

The two companies had sales of 39,000 homes in 2008 with revenues of $11.6 billion.

Liz Boyd, spokeswoman for Gov. Jennifer Granholm, said the merger is great news for the company and the state, particularly as it will stay headquartered in Bloomfield Hills.

“There are a lot of unknowns whenever you have a merger of companies,” she said. But to have this company headquartered in Michigan is very important. We have the bragging rights to be home to the nation’s largest homebuilder.”

The merger fills in some gaps for Bloomfield Hills-based Pulte in the first-time homebuyer market and reduces its exposure to the active adult market, which accounted for 45% of its business last year but will total 29% after the merger, Oppenheim wrote.

Pulte also estimated it would save $350 million a year in expenses after the merger.

Howard Fingeroot, managing partner of Pinnacle Homes of Farmington Hills and former president of Pulte Land Development, said the building industry was in consolidation mode prior to the housing and financial industry meltdowns.

“I think this merger with Pulte and Centex is something to generate optimism. It tells me they are looking forward. It’s not just how do we get through today,” Fingeroot said. “They are going to be the biggest homebuilder in the country.”

Ken Dalto, a Farmington Hills-based turnaround expert, said the homebuilding industry was ripe for a right-sizing similar to what is happening in the automotive and financial industries.

“There is so much inventory of houses, Pulte won’t have to build houses for years even when there is a recovery,” Dalto said. “There is not going to be a lot of building and the housing industry is going to be a lot slimmer for a number of years.”

The company will be named Pulte and be headquartered in Bloomfield Hills with a significant presence in Dallas where Centex is based.

Pulte has battled complaints about quality and working conditions lodged by homeowners and the AFL-CIO in recent years. Last year, a group of protesters clashed with Pulte’s board of directors as they arrived for the annual shareholder’s meeting.

The company has said it does all it can to address such complaints. Pulte and its Del Webb brand ranked highest in 11 of 34 markets in the 2007 J.D. Power and Associates New Home Builder Satisfaction Study.

The merger is subject to shareholder approval at both companies.


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