Lennar Corp. the homebuilder, announced on Monday it has entered into a definitive merger agreement to buy CalAtlantic Group, at a price of $9.3 billion, which includes net debt at CalAtlantic of $3.6 billion that it will assume.
Under this just announced deal, each CalAtlantic share of stock is to be exchanged at a rate of 0.885 shares of Class A Lennar common stock.
When using the closing price of the Class A Lennar common stock on October 27 where it is listed on the New York Stock Exchange, the implied value for the stock is $51.34 a share, which represents a premium of 27% to the closing price of Cal Atlantic on Friday October 27 as well.
Using a pro forma basis, stockholders of CalAtlantic will be owners of approximately 26% of the new combined entity. This transaction should close during the first three months of next year.
Currently it is anticipated that this transaction will general cost savings annually as well as synergies of an estimated $250 million, with nearly $75 million of that achieved during just the 2018 fiscal year.
The combination of the two businesses is estimated to create the largest homebuilder in the U.S. with the past 12 months of revenues that would be more than $17 billion and a market capitalization based upon the current prices in the stock market of over $18 billion.
The new entity is expected to control as many as 240,000 home sites as well as have an estimated 1,300 ongoing communities across 49 markets that are in 21 states, where as many as 50% of the population of the U.S. currently resides.
This transaction will be subject to approval by CalAtlantic and Lennar shareholders. Stuart Miller along with the Miller Family Trust agreed together to vote their voting interest of 41.4% with Lennar in favor of a merger.
Shares of CalAtlantic were up over 9% in early Monday premarket trading following the release of the news.
The largest homebuilder in the U.S. by revenue is D.R. Horton which is based in Texas, followed by Lennar which is Miami, Florida based, and Arlington, Virginia based CalAtlantic.
The housing market in the U.S. has steadily increased since the end of the financial crisis and is expected to continue the rest of 2017 and into 2018.