Lennar said on Monday it would buy smaller rival CalAtlantic for about $6 billion, creating the largest homebuilder in the United States as the sector combats higher land acquisition costs and a tighter labor market.
CalAtlantic's shares jumped 19.6 percent to $48.35 in premarket trading, while Lennar's shares were down 4 percent at $55.80. The implied value of the deal is $51.34 per share, a premium of 27 percent to CalAtlantic's close on Friday.
The equity value of the deal is $5.66 billion, based on CalAtlantic's 110.2 million outstanding shares as of July 26, according to Thomson Reuters data. The transaction is expected to close in the first quarter of 2018.
The total value of the stock-and-cash deal, including debt of $3.6 billion, is about $9.3 billion. Lennar said it will save costs of $75 million next year and $250 million in 2019.
The deal will give the combined company better access to land and labor to tap a recovery in the housing market.
In February, Lennar closed a deal to buy fellow Florida-based homebuilder WCI Communities.
Demand for housing in the United States remains robust, supported by low unemployment and interest rates.
Lennar and PulteGroup were upbeat on demand despite hurricanes that hurt operations when they reported quarterly results this month.
The combined company would have a market cap of about $18 billion, based on current prices, and control 1,300 active communities in 49 markets, Lennar said.
D.R Horton had a market cap of about $16.58 billion, according to Thomson Reuters data.
The combined company sold 40,792 homes last year, according to the companies' separate SEC filings. D.R. Horton sold 40,309 homes.
On a pro forma basis, CalAtlantic stockholders are expected to own about 26 percent of the combined company.
CalAtlantic, which is headquartered in Virginia and California, was formed in 2015 with the merger of Ryland Group and Standard Pacific Corp.
Citi was financial adviser for Lennar while JP Morgan Securities advised CalAtlantic.