Taylor Morrison Home Corp. has agreed to buy William Lyon Homes in a deal that would combine the two companies' in-house mortgage divisions and make the resulting entity the fifth-largest U.S. homebuilder.
The proposed acquisition, which has an implied company value of $2.4 billion, calls for a cash payment of $2.50 plus 0.8 shares of Taylor Morrison's common stock for each share of William Lyon. That results in a transaction consideration mix that is 90% stock and 10% cash.
Based on the recent trading prices, the acquisition would give William Lyon stockholders roughly 23% of the shares in the combined company, with the remaining ownership stake going to Taylor Morrison's investors. William H. Lyon, chairman and son of the company's namesake founder, will be one of two board members Taylor Morrison plans to add after the deal closes.
"We look forward to welcoming many of the skilled and highly tenured team members from William Lyon," Taylor Morrison CEO Sheryl Palmer said in an investor call about the transaction Wednesday.
Taylor Morrison aims to generate at least $80 million in savings from "cost synergies" as its combines its operations with William Lyon's, Dave Cone, Taylor Morrison's chief financial officer, said during the call.
The two companies plan to operate a combined mortgage and insurance services platform "to better serve the national footprint" after they merge, according to an investor presentation Taylor Morrison distributed about the deal.
"This will be driven by savings in multiple areas including, but not limited to, overhead optimization, local and national purchasing leverage and combined offerings in financial services to include Taylor Morrison Home Funding, Inspired Title and our Taylor Morrison Insurance Services," he said.
The acquisition comes just months after William Lyon Homes formed ClosingMark Financial Group, a subsidiary that provides mortgage, title agency, settlement and mortgage services.
William Lyon announced the financial unit's formation in July and has integrated its previous mortgage joint venture operations and pipeline into it under the ClosingMark Home Loans brand while cutting ties with its unconsolidated mortgage JVs.
In third-quarter results released Wednesday, William Lyon's net income was $9.5 million, or $0.24 per diluted share, down from $26.6 million, or $0.68 per diluted share, a year ago. When adjusted for nonrecurring charges, its income was $16.1 million, or $0.41 per diluted share.
"Income from our financial services segment was $4.7 million, above our expectations, as the team performed exceptionally well at fully integrating our wholly owned mortgage platform," Matthew Zaist, president and CEO, said in a press release.
