Florida Home Builder to Acquire L.A. Firm
Florida home-building giant Lennar Corp. on Wednesday continued its aggressive expansion into Southern California by agreeing to acquire Los Angeles-based Pacific Greystone Corp. in a merger valued at more than $200 million.
The stock-swap agreement with Pacific Greystone--one of California’s 10 largest builders--is the most recent in a string of deals that has quickly have made Lennar a major player in the regional real estate market. Last year alone, Miami-based Lennar purchased control of the 4,000-acre Stevenson Ranch development in the Santa Clarita Valley and the sprawling Coto de Caza project in south Orange County.
The latest deal symbolizes growing confidence in the regional real estate market after a long and disastrous slump in property values.
“They are betting on an upswing,” housing industry analyst Michael Jaffe said.
Lennar also announced the spinoff of its commercial real estate division as part of a reorganization to create two separate companies and offer potential investors a clearer investment play. Lennar and Pacific Greystone’s residential operations will be included in a new Lennar company. Lennar’s existing shareholders will own 68% of the new company, and Pacific Greystone stockholders will have the remaining 32%.
“The combination of Pacific Greystone’s operating depth in California, with Lennar’s significant lot inventory, positions us uniquely to capitalize on the California housing recovery,” said Pacific Greystone Chairman and Chief Executive Jack R. Harter in a statement.
Under the deal, expected to be completed at the end of the year, Pacific Greystone shareholders would swap each of their shares for 1.138 new Lennar shares. The transaction would be tax-free.
The value of the deal depends on the price of new Lennar shares. Under one estimate offered by industry analysts, the deal values Pacific Greystone at $200 million to $230 million, or in the low $15-a-share range. That’s well below what Pacific Greystone’s stock has been trading at in recent months.
As a result, Pacific Greystone shares on the New York Stock Exchange fell $2 on Wednesday to close at $15.125. Lennar shares jumped $4.25 to close at $30.625, also on the NYSE.
Despite the drop in Pacific Greystone shares, industry analysts said the combination would serve both companies well. Pacific Greystone, which sold nearly 2,000 homes last year in California, Nevada and Arizona, stands to gain from Lennar’s much larger financial resources. Lennar would pick up a profitable home builder and managers experienced in the California and Western home-building markets.
“This adds a level of management with California experience that they would have had to go out and hire,” said Robert P. Curran, who follows the housing industry for Merrill Lynch.
Lennar’s expansion also illustrates the growth of publicly traded home builders--such as Los Angeles-based Kaufman & Broad Corp. and Centex Corp. of Dallas--in a region once dominated by private, family-owned builders. Backed by Wall Street cash, the publicly traded builders have been better able to weather the recession that has killed off many local builders. In Orange County, for example, publicly owned builders now claim more than one-third of the market, compared with less than 5% at the beginning of the decade.
Pacific Greystone, formed in 1991 with the financial backing of Wall Street investment firm Warburg, Pincus Investors, which owns a 56% stake, took advantage of the recession by purchasing thousands of housing lots across California at bargain prices.
The company went public a year ago.
