Even as another round of bids is expected within the next two weeks for the prized five-company home building operation--Weyerhaeuser Real Estate Company--word from industry insiders is that a company has emerged with an inside track on a deal.
Brookfield Residential, whose parent company Brookfield Asset Management Inc. sold it Longview Timber holdings to Weyerhaeuser Co. for $2.65 billion, including assumption of debt, may turn around and use proceeds to acquire Weyerhaeuser's home building operations, using a seldom-used deal structure that would spare the seller taxes on the transaction.
From a previous post, here's the focus point of the deal:
The five companies--Maracay in Arizona, Pardee in California and Nevada, Quadrant in Seattle, Trendmaker in Houston, and Winchester Homes in the D.C. market--together and individually are standout competitors on quality, operational efficiencies, construction site safety, and profit margins. The portfolio, for which Weyerhaeuser does not reveal financial details, amasses to the BUILDER 100's 18th largest home builder, with 2012 reported closings at 2,314 at a 2012 revenue of $1.07 billion.
Several home building executives familiar with deal flow in the sector confirmed they'd heard Brookfield has an edge in the bidding for the Weyerhaeuser home builders, stemming possibly from a long-standing good relationship, and one that grew stronger during the earlier dealings for the Longview Timber asset. Another advantage Brookfield is said to bring to the table is its willingness to structure the transaction as a Reverse Morris Trust.
This deal structure is rare in home builder/developer mergers and acquisitions, but may be a fit for these two particular organizations. Weyerhaeuser and Brookfield would create a subsidy that would deliver cash to Weyerhaeuser and give it shares in the new entity, which would be run by Brookfield.
"Brookfield is a major land developer with relatively small home building operations in the United States, and Weyerhaeuser's five operations are strong home building units that would make this a particularly strong match up," said a senior-level financial services executive with extensive M&A experience in the sector.
Here's a look at Brookfield Residential's home building vs. land sales businesses from corporate documents:
Brad Hunter, chief economist with BIG BUILDER sister company Metrostudy said, "The buyer of this portfolio will wind up with “supply” in some of the hottest markets and submarkets in the country. California new home prices have been rebounding fast, and Texas and Virginia have consistently turned in superior results in recent years."
Executives familiar with home building deals that are ongoing cautioned that until the final bids are in and all i's dotted and t's crossed, it's premature to speculate. They do confirm that Brookfield has been running hard, both at the Weyerhaeuser package and Shapell Homes, another acquisition target whose outcome may come within weeks.