The New Master Builder

Here's one way to avoid asking the federal government for a bailout--merge with another equally weak competitor to see if two can survive as one.

Pulte Homes Inc. today announced it was buying Centex Corp. for $1.3 billion in a stock deal. The sale between the nation's fourth-largest and third-largest homebuilders, respectively, would create the largest such company in the US. Both companies boards have approved the deal.

By combining the two entities, Pulte CEO Richard Dugas said in a statement he expected the company would now be "in an excellent position to navigate through the current housing downturn, poised to accelerate our return to profitability."

The Pulte-Centex combo will create a company with a market value of $4.1 billion and $3.4 billion in cash as of March 31. The split for shareholders will give Pulte 68 percent of the new company and Centex 32 percent.

Over the past year, shares in Centex have dropped 70 percent while at Pulte, shares are down 30 percent. Both companies have posted consistent losses recently--Pulte down for the last nine quarters while Centex has posted loss for the last seven.

"Cash is king and this gives them $3.4 billion, which means they don't need the banks to survive," Vicki Bryan, a senior high-yield bond analyst for Gimme Credit LLC, told Bloomberg.

by J. Jennings Moss