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Centex - Nationwide public homebuilder

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2009-04-08

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stories: premierbuilderusa.com

Update - 2009-05-14: On April 8, 2009, the respective boards of Centex Corporation and Pulte Homes, Inc. announced their unanimous approval of a definitive merger agreement. The two companies will combine under the Pulte name in a stock-for-stock transaction valued at $3.1 billion. According to the press release, the combined operations will expand Pulte's geographic footprint to "59 markets, 29 states and the District of Columbia."

"Under the terms of the agreement, Centex shareholders will receive 0.975 shares of Pulte common stock for each share of Centex they own. Based on the closing price of Pulte stock on April 7, 2009, the transaction has a value of $10.50 per Centex share, representing a premium of 32.6% to the 20-day volume weighted average trading price of Centex's shares. The combined company currently would have an equity market capitalization of $4.1 billion and an enterprise value of $7.2 billion. Upon closing of the transaction, Pulte shareholders will own approximately 68% of the combined company, and Centex shareholders will own approximately 32%."

We are classifying Centex as an "implode" as Centex was sold after a "steep and rapid declines in enterprise value" -- only a year prior, on April 7, 2008, Centex was trading at over $26/share. Thus the $10.50 equivalent share price represents a decline of nearly 60% in value over a year. Going back two years, the decline in Centex share price was closer to 75% (And almost 85% decline from three years prior).

In the Investor Call transcript, Richard Dugas, President and Chief Executive Officer of Pulte is recorded as saying, "While it is premature to discuss specifics now, there will be significant overlap in functions and head count reductions will be part of the process." Following up to a question asked about the two companies' respective mortgage operations, Roger Cregg, Executive Vice President and Chief Financial Officer of Pulte responded:

"Yes, we would look to integrate those functions just like we will the rest of the organizations together. The details of that are forthcoming but you know we do expect to integrate the mortgage operations and financial services operations together."

We are hearing that the remnants of CTX Mortgage will likely go by the wayside. One tipster wrote, "the CTX homebuilder processing center/CTX are hearing rumors that CTX will be shut down and everything will be handled by Pulte Mortgage." The source indicated employees in the Dallas financial services office had been told to expect operations would wrap up in the next 60 days, "by the end of summer for sure."

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Important: This company is on our list of builder operations that have "imploded" (see also ailing lenders). This is a somewhat subjective call, and does not necessarily mean total shutdown or bankruptcy. It can also mean steep and rapid declines in enterprise value; or abnormal "bail-out" by corporate parents or peers in order to continue to operate. The builders may be residential or commercial.