D.R. Horton, Inc., Ft. Worth (NYSE: DHI) on Monday said it had approached the board of Austin-based land developer Forestar Group Inc. (NYSE:FOR) with a proposal to buy 75% of the companies outstanding shares for $16.25 per share in a deal worth approximately $520 million. The proposal, if accepted by Forestar shareholders, would result in a merger between a new wholly owned subsidiary of Horton, led by former DHI CEO Donald Tomnitz, and Forestar.
Shares of Forestar shot up 13% in pre-market trading on Monday.
In April, Forestar entered into a definitive merger agreement with affiliates of Starwood Capital Group under which Starwood will acquire all of the outstanding shares of common stock of the company for $14.25 per share in cash, an 8.2% premium over the 90-day moving average stock price. The total transaction equity value was approximately $605 million. The Horton offer represents a 14% premium over the value of that deal.
Under the proposed transaction, Forestar would remain a public company “to ensure continued access to capital to support the increasing scale of the business,” Horton said in a release. “D.R. Horton believes continuing Forestar stockholders will have the opportunity to participate in significant value creation through a strategic relationship with D.R. Horton that would help Forestar grow organically into the leading residential land development company in the United States, selling developed residential lots to D.R. Horton and other home builders. Forestar would be led by new executive chairman Donald Tomnitz, who served as CEO of D.R. Horton for over 15 years, and a strong management team that is expected to include Forestar’s experienced professionals.”
Said Horton founder and Chairman Donald R. Horton, “We believe that D.R. Horton is uniquely positioned to make Forestar the country’s leading residential land development company. Together, we can grow Forestar into a much more significant and valuable company for all of its stockholders. The Forestar proposal is a continuation of D.R. Horton’s stated strategy of expanding relationships with land developers across the country and growing the optioned portion of its land and lot position to enhance operational efficiency and returns. We urge the Forestar Board to act quickly on this proposal which is in the best interests of their stockholders.”
The Merger would have a cash election feature in which Forestar stockholders would have the right to elect, for each share of common stock held, either to receive $16.25 per share in cash as merger consideration, or to retain such share of the surviving entity (the “Forestar Successor”). Cash and stock elections will be prorated, as appropriate, such that 75% of the shares of Forestar common stock outstanding before the Merger are converted into the $16.25 per share cash consideration.Following the Merger, D.R. Horton would own 75% of the outstanding Forestar Successor shares, and existing stockholders would own 25% of the outstanding Forestar Successor shares. Forestar would remain a public company, and its common stock will trade on the NYSE.
D.R. Horton said it has the cash and other immediately available capital to fund the approximately $520 million investment.
