Standard Pacific-Ryland: a rare home building merger

Standard Pacific and Ryland Group merge

Home builder Ryland announced it would merge with Standard Pacific, creating the fourth largest builder by revenue. The deal is expected to close in the fall.

Standard Pacific will undertake a 1-for-5 reverse stock split. After the split, Ryland shareholders will receive 1.0191 shares of Standard Pacific stock for each Ryland share.

Though billed as a "merger of equals," Ryland will hold a 41-percent stake while Standard Pacific will have a 59-percent stake.

Mergers of home builders are fairly rare events. The last real merger of size in this space was between PulteGroup and Centex in 2009, though in 2013 Tri Pointe Homes acquired the land assets of Weyerhaeuser.

Read More Home builder confidence hits highest level of year, up 5 points

Why are mergers fairly rare in the home building space? Builders don't like to buy each other because what they really want is the land. That's what is scarce. So why pay a premium for operations when all they want is land? Just buy the land.

Still, in some circumstances, the deal would make sense when you need scale fast. You get the purchasing power of a bigger guy. More negotiating power with subcontractors.

It would also make sense if you thought the home building market was in for a period of slow growth.