In a deal that will create the nation's biggest homebuilder, Pulte Homes is buying Centex for $1.3 billion in stock as both companies try to survive the worst real estate recession in a generation.
The transaction, which also includes $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 homebuyers.
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, Mich., will have cash reserves totaling $3.4 billion and pay off $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. Secondly, the cash position allows us to pay down debt while at the same time provide ample liquidity for the future," said Richard Dugas Jr., said Pulte's president and chief executive, who retain those titles over the combined enterprise.
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.