Pulte Homes to buy Centex

Although many pundits had thought this would be the year that would begin the consolidation of home building companies, they also probably thought it would start small, with large builders picking up smaller, private ones. But in a $1.3 billion transaction, two giants -- Pulte and Centex -- have announced a merger that would create by far the industry's largest home builder, with annual revenues double that of the current leader, D.R. Horton. From an AP story:

Pulte Homes Inc. is buying Centex Corp. for $1.3 billion in stock in a deal that will create the nation's largest homebuilder -- by far -- and could spark further consolidation in an industry that is suffering the worst real estate recession in a generation.

The transaction, which also includes $1.8 billion of debt, will combine Pulte's strength in active-adult and retirement housing with Centex's hefty market share of first-time homebuyers.

The acquisition also will give Pulte large tracts of land in Texas and the Carolinas, two of the most resilient real estate markets, and a presence in 29 states and Washington, D.C.

But Wall Street analysts are concerned about the risk of taking on so much land in other areas where home prices are still plummeting, including Sacramento and Riverside, Calif., and Cape Coral, Fla.

The new company, which will keep the Pulte name and headquarters in Bloomfield Hills, Mich., will have cash reserves totaling $3.4 billion and pay off $1 billion in debt by the end of the year...

Pulte and Centex contend that the deal will help them capitalize on what the executives see as the beginning of a recovery in the housing market.

On Wednesday, new data showed loan applications to purchase a home rose 11 percent last week. And new home sales climbed almost 5 percent from January to February, providing some hope that the sales may have reached a bottom...

But the deal also is being driven by fierce market forces. Homebuilders are struggling to find their footing as credit remains tight and potential customers remain leery of buying a home in the face of rising unemployment. The industry has attempted to stem the bleeding by slashing new construction and prices to unload existing inventory.