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Centex and Pulte Homes to Merge, Creating America's Largest Home Builder

Date Added: April 13, 2009 12:26:28 PM
Author: Tamara Jackson
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In calendar year 2008, Pulte and Centex delivered more than 39,000 closings with combined pro forma revenues of $11.6 billion. The combined company will have the strongest liquidity position among its peer group with more than $3.4 billion of cash as of March 31, 2009. Pulte and Centex ended March with approximately $1.7 billion of cash each.

Under the terms of the agreement, Centex shareholders will receive 0.975 shares of Pulte common stock for each share of Centex they own. Based on the closing price of Pulte stock on April 7, 2009, the transaction has a value of $10.50 per Centex share, representing a premium of 32.6% to the 20-day volume weighted average trading price of Centex's shares. The combined company currently would have an equity market capitalization of $4.1 billion and an enterprise value of $7.2 billion. Upon closing of the transaction, Pulte shareholders will own approximately 68% of the combined company, and Centex shareholders will own approximately 32%.

The combination of Pulte and Centex will offer exceptional homes in well-designed communities that meet the desires of a cross-section of customers, ranging from first-time buyers to Baby Boomers. Fox & Jacobs Homes, Centex Homes, Pulte Homes, DiVosta Homes and Del Webb are all top brands known by entry level, first move-up, second move-up and active adult purchasers throughout the nation. This powerful brand lineup is consistent with Pulte's vision of creating the industry's best and most-recognized brands, and leveraging their presence across America. The combined organization will expand its geographic footprint to cover 59 markets, 29 states and the District of Columbia.

The two companies are the industry's recognized leaders in customer satisfaction. They are the only homebuilders to have received the Platinum Award from J.D. Power & Associates for excellence in customer satisfaction.

Pulte expects that efficiency gains and other savings from this transaction should generate cost reductions of approximately $350 million annually, consisting of approximately $250 million in overhead savings and $100 million in debt expense relief, resulting from the expected retirement of debt maturities in excess of $1 billion prior to year-end 2009. The company expects to realize a significant portion of the estimated cost savings during the first full year of operations after the transaction is completed, with the full amount realized by the third year. Pulte also expects to realize additional savings opportunities through production efficiencies and purchasing synergies.

The companies have confidence in the ability to achieve the estimated efficiencies and cost savings based on Pulte's successful track record of integration, including its acquisition of Del Webb in 2001. That acquisition, the largest of its kind at the time, helped make Pulte the number-one builder of active adult communities in America, the fastest-growing segment of home buying.


Upon completion of the transaction, Mr. Dugas will assume the positions of chairman, president and chief executive officer of Pulte, Inc. Mr. Eller will join the board of directors of Pulte as vice chairman and will serve as a consultant to the company for two years following the close of the transaction. The board of directors of Pulte will be expanded and will include four current members from the Centex board, including Mr. Eller, and eight members of the current Pulte board, including company founder and current Pulte Chairman William J. Pulte.

To guide and ensure a successful transition, a transition executive committee will be formed and will be headed by Mr. Dugas and Mr. Eller.

The combined company will use the Pulte name and will be headquartered in Bloomfield Hills. The company plans to maintain a significant presence in Dallas.

The transaction is subject to approval by Pulte and Centex shareholders and the satisfaction of customary closing conditions and regulatory approvals, including expiration or termination of any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. Certain Pulte and Centex officers and directors, including Mr. Pulte, have agreed to vote their shares in favor of the transaction. Pulte and Centex expect to complete the transaction in the third quarter of 2009. The transaction is intended to qualify as a tax-free reorganization for U.S. federal income tax purposes.

As previously disclosed, Pulte is seeking approval at its 2009 annual meeting of shareholders of an amendment to its charter to restrict certain transfers of shares of Pulte common stock in order to preserve the tax treatment of Pulte's net operating losses and other tax benefits. As an additional measure to address any transfers that may occur prior to the adoption of a charter amendment, Pulte's board of directors has amended Pulte's by-laws to incorporate transfer restrictions substantially similar to those reflected in the proposed charter amendment.

Citi acted as lead financial advisor and Banc of America Securities and Merrill Lynch and J.P. Morgan Securities Inc. acted as financial advisors to Pulte and Sidley Austin LLP acted as legal advisor. Goldman, Sachs & Co. acted as financial advisor to Centex and Wachtell, Lipton, Rosen & Katz acted as legal advisor.

Pulte Homes, Inc., (NYSE:PHM) , based in Bloomfield Hills, Mich., is one of America's largest home building companies with operations in 49 markets and 25 states. During its 59-year history, the company has delivered more than 500,000 new homes. In 2008, Pulte Homes operations ranked highest in customer satisfaction in 11 U.S. markets, the most of any homebuilder, in the annual J.D. Power and Associates(R) New Home-Builder Customer Satisfaction Study(SM). Under its Del Webb brand, Pulte is the nation's largest builder of active adult communities for people age 55 and older. Its DiVosta Homes brand is renowned in Florida for its distinctive master-planned communities. Pulte Mortgage LLC is a nationwide lender offering Pulte customers a wide variety of loan products and superior service.

Dallas-based Centex, founded in 1950, is one of the nation's leading home building companies. Its leading brands include Centex Homes, Fox & Jacobs Homes and CityHomes. In addition to its home building operations, Centex also offers mortgage and title services. Centex has ranked among the top three builders on FORTUNE magazine's list of "America's Most Admired Companies" for 10 straight years and is a leader in quality and customer satisfaction.

Source: Pulte Homes, Inc.

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