Pulte, Del Webb to Create Nation’s Top Home Builder

A $1.8-billion purchase of Phoenix-based Del Webb Corp. by Pulte Corp., announced Tuesday, will create the nation’s largest home builder and senior-community developer, at the same time turning also-rans into players in the California market.

Bloomfield Hills, Mich.-based Pulte will issue $800 million in stock for Del Webb--builder of the Sun City senior developments--and assume $1 billion in debt in a strategy designed to attract home buyers from their first purchase through retirement.

Together, the companies will have $6 billion in revenue and sell more than 28,000 homes a year and will control large land tracts in such popular Sun Belt states as Arizona, Florida, Nevada, South Carolina and Texas.

The combined company will surpass the nation’s other large home builders, including Los Angeles-based KB Home, Miami-based Lennar Corp. and Dallas-based Centex, which each sell 20,000 to 22,000 homes annually, said Don Mickus, Del Webb’s treasurer.

The merger also will vault Pulte from 19th-largest home builder in California to sixth, just behind Irvine-based Standard Pacific Corp., said John Burns, vice president of the Meyers Group, an Irvine real estate consulting firm. Del Webb previously ranked 11th.

Founded by Fresno native Delbert E. Webb, who moved to Phoenix in the 1920s to recover from typhoid, Del Webb has a storied history in the development of the Western United States.

Webb, a baseball fan who once owned half of the New York Yankees, built the Flamingo Hotel in Las Vegas for mobster Bugsy Siegal and many other casino properties in the original Sin City. He was a major builder for the reclusive Howard Hughes, and in 1960 came up with the concept of “Sun City,” a self-contained adult community near Phoenix.

By the time Webb died in 1974, the Sun City name had become the top brand for retirement communities nationwide.

Del Webb has built and sold more than 70,000 homes at 13 Sun City communities over the last 40 years. These communities, which include golf courses and other senior-oriented amenities, were what attracted Pulte’s interest.

“Brand name is very important for senior buyers,” Burns said. “They want to make sure they are buying a home from a quality builder.”

Though Pulte operated a small “active senior” home-building division, acquiring Del Webb gives it a dominant position in a market that Robert K. Burgess, chairman and chief executive of Pulte Homes, said is the industry’s fastest-growing segment. By some estimates, the number of people ages 55 to 64 in the United State is expected to increase by almost 50% over the next decade.

“This is a good strategic fit that makes sense for what Pulte is trying to do,” said David Weaver, an analyst with Legg Mason Wood Walker Inc. in Baltimore.

Pulte’s shares fell 9%, or $4.28, to close at $42.50 on the New York Stock Exchange. Del Webb’s shares rose 14%, or $4.60, to close at $38.40 on the exchange. The deal values Del Webb at about 20% more than its closing price of $33.80 on Monday.

“Active adult communities look very promising as baby boomers start to move into that segment of the market,” Weaver said.

At the Sun City communities, one member of the household needs to be at least 55 years old and no children are allowed, according to Del Webb officials.

“Pulte’s long-term strategy is get the first-time buyer, give them good service and a good product so they come back for the move-up house,” Burns said. “Now they can do that through retirement. Del Webb fills the gap they had at the end.”

While the deal gets Pulte into the attractive senior market right away, Weaver said, it will take a generation to know whether its strategy of generating repeat business works.

The acquisition also gives Pulte valuable land holdings in Sun Belt states that Del Webb built up, said Chris Bauders, an analyst with Raymond James & Associates in St. Petersburg, Fla.

Del Webb has entitlements for 55,000 home lots and owns 5,600 acres in Hilton Head Island, S.C.; 5,625 acres at a development in Texas; and 4,000 acres near Phoenix.

“You can use the land for Del Webb homes or for Pulte homes,” Bauders said, “but the cost of that land is already locked in and you know what your cost basis is going to be.”

In Southern California, Del Webb operates Sun City Palm Desert on 1,645 acres of former desert 130 miles east of Los Angeles. The company has sold 2,670 of the 4,643 homes planned for the development.

“Southern California suffers from a lack of good retirement housing and we lose a lot of our seniors to Phoenix and Las Vegas,” said Burns of the Meyers Group. “Hopefully, this will allow Pulte and Del Webb to better meet the demand here.”

Indeed, in regulatory filings with the Securities and Exchange Commission, Del Webb said it is particularly sensitive to the Southern California market because of the homes it sells here and because so many buyers at its other developments come from the region.

The merger, however, will give the combined company broad geographic reach, placing it in 44 markets nationally.

Burgess will remain chairman and chief executive of Pulte until his previously announced retirement Dec. 31. Mark J. O’Brien, now president and chief operating officer, will succeed him. LeRoy C. Hanneman, president and chief executive of Del Webb, will remain with the company until the deal is completed and then retire.

The combined company will use the Pulte Homes name and stay in Bloomfield Hills. The Del Webb business will become the Del Webb Group of Pulte Homes and operate out of Phoenix. The companies estimate the merger will result in about $50 million in cost savings annually.