D.R. Horton, Inc. (NYSE: DHI) and Forestar Group Inc. (NYSE: FOR) on Thusday said the companies executed a definitive merger agreement under which D.R. Horton will acquire 75% of the currently outstanding shares of Forestar for $17.75 per share in cash. The agreement capped a bidding battle for Forestar with Starwood Capital Group.
The transaction will occur through a merger of a newly formed, wholly-owned subsidiary of D.R. Horton with Forestar. Forestar stockholders will have the right to elect, for each share of common stock held, either to receive $17.75 per share in cash as merger consideration, or to retain such share of the surviving entity. 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 $17.75 per share cash consideration. Following the Merger, D.R. Horton will own approximately 75% of the outstanding Forestar Successor shares, and existing stockholders will own approximately 25% of the outstanding Forestar Successor shares. Forestar will remain a public company, and its common stock will continue to trade on the NYSE under the symbol “FOR”.
D.R. Horton has the cash and other immediately available capital to fund the approximately $560 million cash consideration. The transaction is expected to be accretive to D.R. Horton’s fiscal 2018 earnings.
Under the terms of the agreement, Forestar will operate as a public company led by Donald Tomnitz, former CEO of D.R. Horton, as Executive Chairman, and members of the current Forestar management team. Forestar’s headquarters will remain in Austin.
Both companies will identify land development opportunities to expand Forestar’s platform in its current markets and across D.R. Horton’s national footprint. D.R. Horton plans to acquire a large portion of the lots Forestar develops at market prices from newly identified land acquisition opportunities.
In a press release, the company explained its rationale for pursuing the deal. “D.R. Horton is committed to owning no more than a two- to three-year supply of lots and supplementing its land pipeline through lot purchase agreements with land developers. This transaction is consistent with its stated long-term strategy of developing strong relationships with land developers across the country and growing the optioned portion of its land and lot position to enhance both operational efficiency and returns. The strategic agreement with Forestar provides D.R. Horton a unique platform to accelerate this strategy.
“Most land developers lack the scale and access to capital to consistently supply D.R. Horton with a meaningful portion of lots across its national footprint. Strategic alignment with D.R. Horton’s network of markets, experienced team and land seller and business relationships will rapidly accelerate Forestar’s growth.
“As the controlling shareholder in Forestar, D.R. Horton will look to guide the strategic direction and drive the operational execution to maximize the future value potential of Forestar. Over the longer term as Forestar achieves the goal of becoming a leading national land developer, D.R. Horton currently intends to gradually reduce its ownership position in Forestar and increase the public float of Forestar stock.”
“We are pleased to have reached this agreement with Forestar,” said Donald R. Horton, chairman and founder of D.R. Horton. “The acquisition of a majority ownership position in Forestar advances D.R. Horton’s stated strategy by increasing our access to high-quality optioned land and lot positions and creates strategic alignment between these companies. Forestar’s shareholders meaningfully benefit by receiving a superior and immediate cash premium for their shares, while also having the opportunity to retain a substantial stake in a company we are committed to growing into a leading residential land development platform with national scale.”
“Forestar is pleased to announce this transformational agreement with D.R. Horton, America’s largest home builder. This transaction is expected to create additional value for shareholders of both companies, and to enable Forestar to become a leading national land developer,” said Phillip J. Weber, Chief Executive Officer of Forestar. “Aligning Forestar’s resources with D.R. Horton’s strong demand for finished lots, extensive network of markets, land acquisition and development professionals and land seller and business relationships is expected to accelerate our growth and enhance our operating efficiency and returns. By remaining a public company, Forestar expects to maintain access to capital to support the increasing scale of the business.”
The transaction is expected to close in the fourth calendar quarter of 2017 subject to the approval of Forestar shareholders and other customary closing conditions.
