Pulte and Centex announced today that they would merge to become the largest player in the homebuilding industry, dwarfing rival D.R. Horton. The $3 billion stock-for-stock merger is a sign that at least Pulte’s management thinks a bottom may be near in the housing bust. The deal reminds me of the big oil company mergers of the 1980s and 1990s, when, confronted by low prices, big names such as Gulf, Getty, Mobil, Texaco and Arco disappeared.
Who’s next? It’s hard to say. But I wouldn’t be suprised to see a troubled player like Beazer Homes get snapped up. The trend for years had been small regional builders getting acquired by larger, publicly traded national companies. Now the big guys will likely start merging.
Pulte says the deal will extend its reach deeper in the first time homebuyer category, a Centex specialty. There’s another reason though, $350 million a year in cost savings, according to Pulte. That’s $250 million in lower overhead; $100 million in reduce debt expenses. A when housing does bounce back, bigger profits for Pulte.
BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.