Pulte-Centex merger creates nation's largest homebuilder

Pulte Homes Inc.'s acquisition of Centex Corp. will make Bloomfield Hills home to the nation's largest homebuilder and puts Pulte -- one of southeast Michigan's largest non-automotive companies -- in a position to thrive once the nation's beleaguered real estate market begins to rebound.

Bloomfield Hills-based Pulte, the nation's third-largest homebuilder, and Dallas-based Centex, the fourth-largest, announced the deal early Wednesday in what is the first merger of homebuilders since the nation's home market began to tank in 2007.

The $1.3 billion transaction, in which each Centex share will be exchanged for 0.975 shares of Pulte upon the merger's close, will keep corporate control in Bloomfield Hills, and ensure the retention of Pulte's name and CEO Richard Dugas.

The deal puts the combined company in a better financial position to survive the housing market crash, which has ground home building to a halt and dropped prices to lows, at least in Metro Detroit, that haven't been seen in more than a decade.

"By combining with Centex, we believe that we build on our leadership position in this industry and are poised to accelerate our return to profitability," Dugas said in a conference call Wednesday with investors and the media. "In addition to our increased scale, together we will be better positioned to capitalize on opportunities when the market returns to more normal levels."

By combining operations, Pulte and Centex expect to save approximately $350 million a year by reducing overhead costs and debt. The new company expects to cut some redundant jobs as a result of the merger, but hasn't yet said how many.

Pulte employs 4,700 workers throughout the United States; Centex has roughly 2,600. Both companies extensively use local subcontracting firms to build new homes and condominiums around the nation.

Though Centex made the initial overtures toward a merger, Pulte, with its deep Michigan roots, stands to win big from the transaction. Pre-merger Pulte shareholders will control more than two-thirds -- 68 percent -- of the combined company, while eight of the 12 board of directors seats will be filled by Pulte.

The combination also allows Pulte to draw on Centex's strengths in some U.S. regions that have been hit less hard by the tsunami of foreclosures, sluggish sales and falling home prices that have characterized the housing crisis. In particular, Centex has a strong portfolio of properties in Texas and along the coasts of North and South Carolina, where market troubles have been less severe than in areas such as Florida, Arizona and California, where Pulte and its subsidiaries have high market penetration.

Additionally, the merger opens Pulte up to the lower-priced, first-time buyer market, which it previously eschewed in favor of building higher profit "trade-up" homes. With interest rates at historic lows, absorbing Centex allows Pulte to tap that segment without its own expansion.

Vicki Bryan, an industry analyst with Gimme Credit LLC, said the combination of Pulte and Centex will help draw down overhead costs and shrink the companies to a more reasonable size for today's market, in addition to setting Pulte up for big gains once homebuilding activity begins to rise.

"This is really good because not only are there too many homes, there are too many homebuilders," Bryan said.

Oversaturation of the new home market during the unprecedented growth in demand for U.S. real estate in recent years has hit Michigan hard. A number of developers who built farther into Metro Detroit suburbs hoping for big returns on investments have been hit with losses, as demand -- and prices -- fell swiftly.

Centex, for one, announced last April that it would leave the Michigan market, where it employed 70 people. It entered the Metro Detroit market, Pulte's longtime home turf, in 2001 and built approximately 4,400 homes during its seven years here. Some of the Centex-built homes are still waiting for buyers in Oakland County, despite the company's departure a year ago.

The Pulte-Centex deal, which still needs antitrust approval from the Justice Department, likely won't tip off a series of other mergers in the industry, said New York-based analyst Ivy Zelman.

Bloomberg News contributed. nhurst@detnews.com">nhurst@detnews.com (313) 222-2293