Homebuilder Lennar to buy WCI for $643 million to expand in Florida
Lennar model homes are seen at a development in Arvada, Colorado September 17, 2014. REUTERS/Rick Wilking
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By Arunima Banerjee
(Reuters) - Lennar Corp (NYSE: LEN), the No. 2 U.S. homebuilder, said it would buy fellow Florida-based homebuilder WCI Communities Inc (NYSE: WCIC) for about $643 million, boosting its land bank in one of the fastest improving housing markets in the United States.
The deal comes two days after Lennar, which mainly caters to buyers looking for a second home, said its profit margins were being hurt due to rising land and labor costs.
The deal will help Lennar boost its lot count in Florida by about 14,200 sites to 173,000, and increase its pipeline of available land to 7 years from 6 years, Susquehanna Financial Group estimated. UBS estimated Florida accounted for about 30 percent of Lennar's home closings in 2015.
The housing market in Florida has improved the most since last year and the state also accounted for four of the top five most improved metro areas, including Orlando and Tampa, Freddie Mac said in a report in July. (http://mwne.ws/2cor1aC)
Lennar offered $23.50 per WCI share, half in cash and half in stock. However, WCI shares rose as much as 41.5 percent to $24.28 on Thursday, never once falling below the offer price, indicating investors were expecting a rival bid or for Lennar to raise its price.
While bids from Toll Brothers Inc (NYSE: TOL) or Tri Pointe Group Inc (NYSE: TPH) could make sense given the type of houses, prices and geography, Lennar could squeeze the most from the deal as they are already present in Florida, said Susquehanna analyst Jack Micenko. Susquehanna is a market maker in the securities of Lennar and WCI.
WCI said it had 35 days to shop for a higher offer. Lennar said it had the option of increasing the cash portion of its offer, including paying the full amount in cash.
WCI builds single-family and multi-family luxury homes that cater mostly to move-up buyers – a more profitable demographic for homebuilders as they often get financing more easily than first-time buyers.
"WCI's land portfolio dovetails perfectly with our own Florida footprint and expands our product offering to capture more of the move-up market," Lennar Chief Executive Stuart Miller said in a statement.
The transaction gives WCI an enterprise value of $809 million, Lennar said.
WCI's financial advisers are Credit Suisse and Citigroup Global Markets Inc and its legal advisers are Latham & Watkins LLP. Lennar's legal adviser is Goodwin Procter LLP and Gibson Dunn & Crutcher LLP is its special tax counsel.
(Reporting by Arunima Banerjee in Bengaluru; Editing by Savio D'Souza)
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