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Weyerhaeuser Company’s (WY - Analyst Report) announcement that it was selling its homebuilding and real estate company, WRECO to TRI Pointe Homes, Inc. (TPH - Snapshot Report) created some stir in the company’s share price. The shares rose a few cents after the announcement and ended at a gain of 0.1% on Nov 4, over its previous day’s closing price.

The deal between the two parties requires Weyerhaeuser to use either a spin-off or split-off transaction method, which at current levels has not been decided upon. Any method used will merge WRECO with a subsidiary of Tri Pointe.

Talking about the financial aspects of the transaction, Weyerhaeuser’s shareholders will receive approximately 130 million shares or 80.5% of the combined company’s shares and $700 million in cash. The rest of the 19.5% shares will be allotted to pre-transaction shareholders of Tri Pointe. Combining the two payment modes, the transaction has been valued at $2.7 billion.

The transaction is anticipated to work in the best interests of Weyerhaeuser’s shareholders as it will be treated as a tax-free transaction for the company. Also, separation of this homebuilding unit will free resources that the company can utilize for its core forest products business.

Completion is pending upon receipt of regulatory approvals along with the approval of Tri Pointe’s shareholders and will likely consummate in the second quarter 2014.

We believe the aforementioned transaction, when fully complete, will bode well for Weyerhaeuser’s growth prospects. Currently, the Zacks Consensus Estimate for the company is $1.14 for 2013 and $1.34 for 2014, representing year-over-year growth of 97.3% and 16.8%, respectively.   

Weyerhaeuser currently carries a Zacks Rank #3 (Hold). Other stocks to watch out for in the sector are Universal Forest Products Inc. (UFPI - Analyst Report) with a Zacks Rank #1 (Strong Buy) and DXP Enterprises, Inc. (DXPE - Snapshot Report) with a Zacks Rank #2 (Buy).

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