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Deal creates biggest pairing

IN a deal that will create the biggest United States home builder, Pulte Homes Inc is buying Centex Corp for US$1.3 billion in stock as both companies try to survive the worst real estate recession in a generation.

The transaction, which also includes US$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 home buyers.

The acquisition also will give Pulte large tracts of land in Texas and the Carolinas, two of the most resilient real estate markets. But Wall Street analysts are concerned about the risk of taking on so much land in other areas where home prices are still plummeting.

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

"We believe the combined companies will allow us to return to profitability quicker than a standalone,''said Richard Dugas Jr, Pulte's president and chief executive, who retain those titles over the combined enterprise.

''Secondly, the cash position allows us to pay down debt while at the same time provide ample liquidity for the future."

Centex's Chairman and Chief Executive Timothy Eller will become Pulte's vice chairman and will also work as a consultant for two years following the acquisition's completion.

The pairing of Pulte and Texas-based Centex comes at a time when home builders are still 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 in turn has attempted to stem the bleeding by drastically scaling back new construction and slashing prices to unload existing inventory.

Combining their operations, the two firms will save about US$350 million a year, including US$250 million in overheads. There will be layoffs, but Dugas said it was too early to predict how many employees will be involved.

As part of the deal, Centex shareholders will receive 0.975 share of Pulte common stock for each share of Centex that they own. The transaction is valued at US$10.50 per Centex share based on Pulte's Tuesday closing stock price of US$10.77. That represents a 38-percent premium to Centex's closing price of US$7.62 on Tuesday.

The companies called the transaction a merger, but Pulte stockholders will own about 68 percent of the combined business and Centex shareholders will own the remaining 32 percent.

Centex had approximately 124.4 million shares outstanding for the quarter ended on December 31, 2008.

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


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