Tri Ponte Homes to acquire rival Weyerhaeuser's residential business for $2.7 bn
06 November 2013
Residential property developer Tri Pointe Homes Inc is acquiring Weyerhaeuser Co's residential real estate unit in a $2.7 billion transaction.
Under the terms of the acquisition, structured as a tax-free Reverse Morris Trust, Weyerhaeuser would distribute ownership of the residential business to shareholders, followed by a merger in which it would become a unit of Tri Pointe, according to a statement yesterday from the Irvine, California-based builder.
According to Investopedia, a Reverse Morris Trust is a tax-avoidance strategy, in which a corporation wanting to dispose of unwanted assets can do so while avoiding taxes on any gains from those assets. The Reverse Morris Trust starts with a parent company looking to sell assets to a smaller external company. The parent company then creates a subsidiary, and that subsidiary and the smaller external company merge and create an unrelated company.
The unrelated company then issues shares to the shareholders of the original parent company. If those shareholders control over 50 per cent of the voting right and economic value in the unrelated company, the Reverse Morris Trust is complete. The parent company has effectively transferred the assets, tax-free, to the smaller external company.
A deal of the type would enable Tri Pointe, with a market value of about $530 million, to buy a larger company with the majority of the combined entity held by Weyerhaeuser shareholders.
Tri Pointe would gain around 27,000 lots in states including Texas, Arizona, California and Nevada at a time when developers are rushing to acquire land to take advantage of demand for new houses.
The acquisition would enable Tri Pointe to acquire five brands, Pardee Homes, Trendmaker Homes, Maracay Homes, Winchester Homes and Quadrant Homes from Weyerhaeuser . Pardee Homes operates in southern California, but it would also give Tri Pointe access to the Las Vegas market. Trendmaker Homes has operations in Texas, while Maracay Homes is in Arizona. With Winchester Homes, Tri Pointe gets entry to the Washington, DC, metro area and Quadrant Homes to the Puget Sound region in Washington.
The statement said, the company would become one of the top 10 US homebuilders with the deal.
Barry Sternlicht, the chairman of Tri Pointe, said in a conference call with analysts, he expected the transaction to be accretive in year one and every year after that.
Tri Pointe was up 5 per cent to $16.15 at the close in New York.
Tri Pointe had till now focused primarily on mid range to upscale single-family homes in major metropolitan areas in southern and northern California. The company recently added the Colorado market to its portfolio, and the deal with Weyerhaeuser has expanded its reach even further.
According to commentators, while the housing market's recovery had been steady, homebuilders had been selective in their consolidation efforts. They had picked their spots wisely, trying to ensure the best fit for their business.