On Monday, Lennar Corporation announced plans to merge with CalAtlantic Group (NYSE: CAA) to make America’s largest homebuilder in a stock and cash deal worth $5.7 billion. This merger would create around 240,000 building plots in 21 states which would total a market value of about $18 billion and combined revenue of $17 billion in hopes to better the home building sector after a long running labor shortage and natural disasters.
After Hurricanes Harvey and Irma hit parts of the south, new housing construction fell 9.3% last month as housing starts across the country dropped 4.7% marking a one-year low of 1.127 million units. 60% of homebuilders have been struggling to find skilled labor during the third quarter of the year.
Under the deal, CalAtlantic shareholders will receive 0.885 of a Lennar share that would equate to $51.34 a share valuing CalAtlantic at $9.3 billion. The shareholders will also have an option to take all of a portion of their shares in cash at $48.26 a share where cash payments would be limited to a total of $1.2 billion. The company’s shareholders would own about 26% of the combined company and would close off the deal in the first quarter of next year.
"Our overall company size and local critical mass will yield significant benefits through efficiencies in purchasing, access to land, labor and overhead allocation to a greater number of deliveries. The combined land portfolio will position the company for strong profitability for years to come, as we continue to benefit from a solid homebuilding market, supported by job and wage growth, consumer confidence, low levels of inventory, and a production deficit," Stuart Miller, CEO of Lennar said.