April 8, 2009 - Pulte Homes Inc. and Centex Corp., Bloomfield Hills MI

Pulte Homes to Buy Centex for $1.3 Billion in Survival Bid

Where it all started Pulte Homes was founded in 1950 by an 18 year-old kid with the dream of becoming a home builder in his hometown of Detroit. Bill Pulte's first house sold for $10,000, and his dream has grown by more than 500,000 homes throughout the Company's history.

Pulte Homes Inc. agreed to buy Centex Corp. for $1.3 billion in an all-stock deal that creates the largest U.S. homebuilder by revenue and throws each of them a lifeline in the worst housing slump since the 1930s.

Pulte agreed to pay 0.975 of a share for each Centex share, valuing Centex at $10.50, or 38 percent more than yesterday’s closing price, the Bloomfield Hills, Michigan-based company said today in a statement. The transaction, approved by both companies’ boards, includes $1.8 billion in net debt.

“This is really good because not only are there too many homes, there are too many homebuilders,” said Vicki Bryan, Corrigan, Texas-based senior high-yield bond analyst for New York-based Gimme Credit LLC. “Cash is king and this gives them $3.4 billion, which means they don’t need the banks to survive.”

The companies are betting that by combining they will be better able to survive the worst housing decline since the 1930s, with new home sales down more than 75 percent since their July 2005 peak. The deal also will give Pulte access to states with stronger new home sales, including Texas and the Carolinas.

Deeper Presence

The acquisition “puts us in an excellent position to navigate through the current housing downturn, poised to accelerate our return to profitability,” Pulte Chief Executive Officer Richard Dugas said in the statement. “Together we will have considerable presence in more than 59 markets across America.”

Pulte and Centex are combining as homebuilder shares have rallied in the past month on speculation that lower mortgage rates will help the industry recover.

Fixed mortgage rates in the U.S. fell to a record low last week of 4.78 percent as the Federal Reserve ramped up purchases of mortgage-backed bonds to support home lending. Mortgage applications in the U.S. rose for a fourth consecutive week as a decline in borrowing costs prompted more refinancing.

The combined companies will have more than $3.4 billion of cash as of March 31 and a market value of $4.1 billion, according to the statement. Pulte shareholders would own about 68 percent of the new combined company and Centex shareholders would own 32 percent. Centex is based in Dallas.

Dugas Takes Over

Dugas will take over the companies and hold the positions of chairman, president and chief executive officer, the companies said. Eller will become a board member of the new company and a consultant.

The combined company will use the Pulte name and have its headquarters in Bloomfield Hills, while maintaining a “significant presence,” according to the statement.

Centex shares have fallen 70 percent in the past 12 months, while Pulte is down 30 percent. The benchmark Standard and Poor’s Supercomposite Homebuilding Index is down 45 percent.

Pulte has reported net losses for each of the last nine quarters, while Centex has posted losses for the last seven quarters.

Citigroup Inc., Banc of America Securities, Merrill Lynch & Co. and JPMorgan Securities Inc. advised Pulte. Goldman Sachs & Co. advised Centex.