Tri Pointe Homes Inc., a developer backed by investor Barry Sternlicht, climbed after agreeing to buy Weyerhaeuser Co.’s residential real estate unit in a $2.7 billion transaction.
The acquisition, structured as a tax-free Reverse Morris Trust, calls for Weyerhaeuser to distribute ownership of the business to shareholders, followed by a merger in which it will become a unit of Tri Pointe, according to a statement today from the Irvine, California-based builder. Such a deal enables Tri Pointe, with a market value of about $530 million, to buy a larger company while Weyerhaeuser shareholders would own the majority of the combined entity.
Tri Pointe will gain about 27,000 lots in states including Texas, Arizona, California and Nevada at a time when developers are racing to acquire land to take advantage of demand for new houses. The company will become one of the top 10 U.S. homebuilders with the deal, according to the statement.
“We get to go there in one fell swoop,” Sternlicht, the chairman of Tri Pointe, said on a conference call with analysts. “We expect this to be accretive in year one and every year after that.”
Tri Pointe gained 5 percent to $16.15 at the close in New York. It earlier rose as much as 16 percent, the most since the shares began trading in January. Weyerhaeuser, based in Federal Way, Washington, was little changed at $30.37.
Weyerhaeuser shareholders will receive 130 million shares in the deal and own 80.5 percent of the combined entity, while Tri Pointe holders will hold 19.5 percent. Weyerhaeuser will also receive about $700 million in cash.
Weyerhaeuser, a real estate investment trust that owns more than 6 million acres of timberland, said in June it would explore alternatives for the unit, which is called Weyerhaeuser Real Estate Co.
“The combined company will be a strong standalone homebuilder, and the separation of our homebuilding division allows us to focus on driving performance in our forest products businesses to deliver further value to our shareholders,” Weyerhaeuser Chief Executive Officer Doyle Simons said in a separate statement.
The deal gives Tri Pointe access to high-growth markets such as Houston, Phoenix, Las Vegas, Seattle and Washington, CEO Doug Bauer said on the call. More than 16,000 of the lots it’s acquiring are in the land-constrained market of California, the company said.
“They’re getting a good homebuilder,” said Craig Sterling, global head of equity research at EVA Dimensions in New York, who estimates Tri Pointe is paying about a 38 percent premium to the current value of Weyerhaeuser’s real estate operation. “They’re paying up a little bit for it.”
Sternlicht, whose Starwood Capital Group LLC owns about 38 percent of Tri Pointe, will remain chairman, while Bauer will continue as CEO. The deal is expected to be completed by the end of June.
Citigroup Inc. and Morgan Stanley advised Weyerhaeuser on the deal and Cravath, Swaine & Moore LLP was legal counsel. Deutsche Bank AG acted as financial adviser to Tri Pointe and Gibson, Dunn & Crutcher LLP was its law firm.