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Lennar to Expand in Florida with WCI Communities Buyout

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Leading U.S. homebuilder Lennar Corporation (LEN - Free Report) has reached a definitive agreement to buy WCI Communities Inc. for $643 million. Following the development, shares of WCI rallied nearly 38% on Sep 22.


Per the deal, Lennar will be acquiring all the outstanding shares of WCI common stock in a cash and stock transaction valued at $23.50 per WCI share, which represents a premium of approximately 37% to WCI's closing price as on Sep 21, 2016. Notably, the transaction grants WCI an enterprise value of $809 million.

The proposed deal has been approved by the boards of directors of both the companies. The transaction will close after it fulfills the customary closing conditions, including a WCI shareholder vote consent that is likely to take place in Dec 2016 or Jan 2017.

Rationale Behind

Notably, the transaction brings together two of the largest homebuilders in Florida. Both the companies’ combined presence in the leading coastal Florida markets will propel growth and facilitate considerable cross and dual brand marketing opportunities.

Lennar is one of the best positioned homebuilders to capitalize on the housing recovery, courtesy of the diverse revenue mix, steady top-line performance, above-average order growth and improving SG&A leverage.

Meanwhile, WCI is a lifestyle community developer and luxury homebuilder of single- and multi-family homes. In the latest twelve months ended Jun 30, 2016, WCI sold 1,118 homes at an average sales price of roughly $444,000.

The deal will help Lennar boost its lot count in Florida by about 14,200 sites, situated in most of the largest and fastest-growing coastal communities in Florida. In the recently reported third quarter of fiscal 2016, Lennar sold 6,758 homes overall for an average selling price of $362,000.

Furthermore, the transaction will generate significant value for shareholders as it accelerates Lennar’s growth, diversification and leads to generation of innovative product offerings.

Our Take

Notably, the housing market in Florida has improved the most since last year. Given that Lennar is already one of the largest homebuilders in Florida, the acquisition of WCI will further augment its exposure to the key growth market.

In fact, the company believes that WCI's land portfolio will perfectly complement its Florida footprint and expand its product offerings.

Lennar currently has a Zacks Rank #3 (Hold). Better-ranked stocks in this sector include MDC Holdings Inc. (MDC - Free Report) and TRI Pointe Group, Inc. (TPH - Free Report) , both of which sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for MDC Holdings’ 2016 earnings moved up 6.5% over the last 60 days. Further, for full-year 2016, EPS is expected to grow a solid 52.5%.

Meanwhile, the Zacks Consensus Estimate for TRI Pointe Group’s 2016 earnings climbed 3.3% over the last 60 days. The company’s earnings have surpassed the Zacks Consensus Estimate in all of the last four quarters, with an average beat of 34.57%.

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