Arizona-based Taylor Morrison, the nation's seventh largest homeowner by income, said it will buy William Lyon Homes, a California-based builder with a large footprint in the Northwest Pacific, as well as Colorado and Texas.  Taylor Morrison will acquire all outstanding shares of William Lyon Homes common stock for a consideration of $ 2.50 in cash and 0.80 shares in Taylor Morrison common stock. The deal values William Lyon Homes at $ 2.4 billion, including the assumption of debt. This gives a purchase price of 1.0 times the book, according to a Taylor Morrison release.
The transaction will consist of approximately 90% Taylor Morrison stock and 10% cash. Based on current trading, Taylor Morrison shareholders will own approximately 77% of the total company while William Lyon Homes shareholders will own approximately 23%. It is expected to close in the second quarter of 2020.
Shares in William Lyon Homes jumped nearly 1
This is Taylor Morrison's sixth builder acquisition in seven years and will move it up into the rankings of the fifth largest t United States builds by revenue.
"The combined business provides the unique opportunity to increase local scale and expertise within six of our major markets while expanding Taylor Morrison to Washington, Oregon and Nevada," said Sheryl Palmer, CEO of Taylor Morrison, who said she had seen her eyes in the Pacific Northwest for many years, but wanted to wait for a recent "reset" in the market.
"So letting it pass makes the timing pretty exciting," Palmer added.
Taylor Morrison will also be the third largest developer in Denver, up from the 14th largest at present.
William Lyon, founded in 1954 and headquartered in Newport Beach, California, had its best year ever in 2018, selling just over 4,000 homes and earning $ 2.1 billion in revenue. However, sales stopped at the end of the year and into the first quarter of this year due to higher mortgage rates.
"The decision to partner with Taylor Morrison was based on shared strategic alignment, like-minded core values, and a long history of integrity," said Matthew Zaist, President and CEO of William Lyon in a release. "We are confident of the success Taylor Morrison demonstrates through his reputation for leadership, quality construction and unparalleled customer experience, and know our teams, our customers and our shareholders will be in good hands."
William Lyon will give Taylor Morrison not only a larger geographical scale, but a larger footprint in the establishment market, which is extremely strong right now.
"Our bread and butter has been entrance, first-time, upstart and active adult," Palmer explained. "William Lyon's business has been about 54% buying at the entry level. Combine these two, and it puts us in a very attractive, mid-to-high 30% entry-level level. Moving becomes more than three-quarters of our total business . "
Palmer said she expects $ 80 million in annual synergies from the transaction. This includes reducing overhead in markets where companies overlap; some employees will be redeployed, but some will not.
On a pro-forma basis, the total company is expected to generate more than $ 6.7 billion in revenue, with approximately 14,200 closures and more than 83,000 cash and controls.
CNBC's Yun Li contributed to this report.