Pulte Homes, Centex Join Homebuilding Forces

Companies merge in housing slump

Pulte Homes Inc. has purchased Centex Corp. The two homebuilders will both benefit from joining their assets now, as the United States is in the worst housing slump since the ’30s. Pulte bought Centex for $1.3 billion in an all-stock deal. The companies now share $1.8 billion in net debt.

Too many builders

Both companies’ boards approved the pourchase.

"This is really good because not only are there too many homes, there are too many homebuilders," said Vicki Bryan, a senior high-yield bond analyst for New York-based Gimme Credit LLC. "Cash is king and this gives them $3.4 billion, the most in the industry, which means they don't need the banks."

Hopefully that means the companies won’t have to rely on short term loans to stay in business until the housing market picks up.

Need for change

New home sales are down 75 percent since July 2005. Sales rose in February, and Pulte Chief Executive Officer Richard Dugas hopes that change in direction plus the acquisition of Centex will return the company to profitability.

Merger motivation

In the past year, Centex has lost 70 percent of its value. Pulte suffered, too, losing 30 percent of its value. Fixed mortgage rates in the U.S. are at record lows, and home prices are still falling. Neither Dugas nor Centex CEO Timothy Eller is predicting a turnaround for the industry, but Dugas said “We’re cautiously optimistic about what we’re seeing now.” ... click here to read the rest of the article titled "Pulte Homes, Centex Join Homebuilding Forces"