It's A Deal
April 9, 2009
Home Is Where The Hurt Is
A merger between homebuilders, in this market? What’s next, the marriage of Joe Biden and Dick Cheney?
Yesterday’s news that Pulte was teaming up with Centex would seem to make so much sense – if it were 2005. Now, well, I’m sure you’ll join me in wishing them all the luck in the world.
There are a few schools of thought here. First and foremost, the more optimistic among us will say it’s in part a bet by Pulte that the housing market has stabilized, or at least has stopped cratering. Yes, Centex brings with it a boatload of cash, offers good geographic fit and the chance to eliminate redundancies, and lets Pulte into the lower end of the market. None of that will matter much, of course, if housing prices fall by another 30% from here, which some pessimistic observers are actually calling for.
Another thing to keep in mind is that this crowd isn’t always the best at ferreting out exactly what’s going on in its own industry. "Given current market conditions, we see an opportunity to invest in our business through the purchase of land assets and our own stock" is how Pulte’s CFO, Roger Cregg, put it back in February of 2006. That didn't work out so well. And generally speaking, the industry was doing some serious cheerleading right up until the point it wasn’t able to anymore. That is, as the housing market collapsed for all to see.
It’s also tough to argue that this transaction is the one that reignites the downtrodden M&A market – though it's the largest deal among homebuilders recently, it’s relatively small in the scheme of things ($3.1 billion, including $1.8 billion of Centex debt) and comes in the only industry that can argue that it’s been harder hit than the financial-services arena.
Then again, what if Pulte has it right? They didn’t come out and say the market had bottomed, just that the combined company will be well-situated for the rebound. And maybe this does get some of their peers in the housing space thinking ahead. Remember, it was that kind of thinking among homebuyers that fueled the speculative frenzy in the real estate market in the first place. Just as so many homebuyers didn’t want to lose out on the opportunity to jump on that three bedroom house with no yard and a so-so school district for the low, low price of $800,000, maybe the homebuilders themselves will start to panic. “We don’t want to miss out on this. Buy, buy!”
Give Pulte credit. The company either got in while the gettin’ was good or … didn’t. As several analysts were quick to note, the combination of the two companies doesn’t change the barren landscape in the housing sector. But at least they’re being proactive.
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