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The timing is right for a merger, two Southland home builders say

Two Southland home builders had talked about merging from time to time but didn't pull the trigger until now

More than once, the chief executives of Southern California home builders Standard Pacific Corp. and Ryland Group Inc. talked about whether they should combine their operations.

"We have from time to time engaged in discussions about the value that would be available to shareholders" with a merger, Standard Pacific Chief Executive Scott Stowell told analysts Monday.

With the U.S. housing market recovery gaining strength, Stowell and his Ryland counterpart, Larry Nicholson, decided to pull the trigger.

Standard Pacific and Ryland on Sunday night announced a $5.2-billion "merger of equals" to create the nation's fourth-largest home builder with operations in 17 states and annual revenue of $5.1 billion.

The companies, which sold a combined 12,633 houses last year, acted now because they see the potential for more match-ups among U.S. home builders and preferred to choose their own partners.

"There may be more consolidation in our industry over time, and ... waiting would have risked our chance of choosing what we believe is the best possible combination for our stockholders," Stowell told the analysts.

The merger also would give the newly combined company a more diverse product line, from entry-level to luxury houses, and wider geographic reach with little overlap.

"We've admired and respected our companies for a very long time" and are confident "we can capitalize on this home-building recovery," Stowell said. "We really think that together, we're better."

Investors initially agreed as prices of both companies' stocks, which will be exchanged to complete the deal, rose Monday in response to the announcement.

Standard Pacific gained 47 cents, or 5.6%, to $8.83 a share, while Ryland rose $2.23, or 5.2%, to $45.02 a share.

Shares of some other leading home builders, including Lennar Corp. and PulteGroup Inc., also rose modestly Monday while the stock market overall suffered a broad loss.

The merger plan comes as the U.S. housing market extends its slow rebound from the severe recession.

New-home sales rose 6.8% in March to a seasonally adjusted annual rate of 517,000, the Commerce Department said last month. Prices also increased, reflecting higher demand and limited supplies.

And confidence among the nation's home builders in June rose to its highest level in nine months, the National Assn. of Home Builders said Monday.

Ryland, based in Westlake Village, builds mostly lower-priced homes in states such as California, Georgia, Pennsylvania, New Jersey and Texas. The company sold 7,677 houses last year and generated revenue of $2.6 billion.

Irvine-based Standard Pacific, with revenue of $2.4 billion last year, mainly builds upscale homes in California, Texas, Florida and the Carolinas.

Standard Pacific's average selling price last year was $478,000. Among the options it offers: A recent development in Brea included a 170-square-foot "pet suite" in the homes.

For both companies, the merger is "a great opportunity to buy a lot of land for growth in one fell swoop" at a time when "it's become increasingly difficult to buy land in appealing locations … at prices that make sense," said John Burns, chief executive of the research firm John Burns Real Estate Consulting in Irvine.

That's especially true in the West, where "California land is increasingly hard to come by," said Erik Oja of the stock-research firm S&P Capital IQ in New York.

james.peltz@latimes.com

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