Today, TRI Pointe settled--expectedly--on its mammoth $2.8 billion deal to acquire Weyerhaeuser's five home building operations in the Northwest, California/Nevada, Arizona, Texas, and the Mid-Atlantic regions, a talent-rich operator group, 27,000 building lots, and power brand names via a complex Reverse Morris Trust financial transaction.
The deal closed eight months, almost to the day, since it was announced on Nov. 3, 2013, jusst about 18 months after TRI Pointe went public, and five years to the month of TRI Pointe's kitchen table start-up in June 2009. It ranks second in magnitude to Pulte's 2009 $3.1 billion acquisition of Centex among home building mergers and acquisitions, and makes TRI Pointe one of the nation's top 15 home builders, with combined home closings over the past 12 months of 3,424 homes.
Here's the wording of the press statement's lead:
TRI Pointe Homes, Inc. (NYSE: TPH) (“TRI Pointe” or the “Company”) announced today that its Reverse Morris Trust transaction with Weyerhaeuser Company (NYSE: WY) (“Weyerhaeuser”) has closed. The transaction, one of the biggest in homebuilding industry history, has resulted in the merger of TRI Pointe with Weyerhaeuser's homebuilding subsidiary, Weyerhaeuser Real Estate Company (“WRECO”). The transaction is valued at approximately $2.7 billion and positions TRI Pointe as one of the top 10 largest public homebuilders in the United States by equity market capitalization based on the closing price of TRI Pointe common stock on July 3, 2014.
Up top, the big win for TRI Pointe is land aplenty, locations where they need to be, people with proven skills, and established high-performing brand names.
The ability to ensnare Weyerhaeuser's empire of five separate, over-achieving organizations from the clutches of other builders and close the deal in 240 days shows in fierce and flashy array the ambition-level and determination of TRI Pointe's three founding principals, combined with the cash and clout of their financial godfather, Starwood Capital's Barry Sternlicht.
"The bright side of this Reverse Morris Trust process is that it's given us eight months to work with each of the operators," TRI Pointe ceo Doug Bauer told BUILDER as the deal closed. "After all of this time, we've conducted the town hall meetings, we've developed the business plans, and we've put all the transition and integration issues to bed."
Here's how the TRI Pointe leadership team looks under the new six-brand portfolio.
Bauer spoke of the "deep bench of management talent" across the five Weyerhaeuser Companies--Pardee Homes in California and Nevada, Quadrant Homes in the Washington, Maracay Homes in Arizona, Trendmaker Homes in Houston, and Winchester Homes in the D.C. metro area--noting that most of the attention in the deal has focused on the enormous land assets.
Here's more from the press statement:
These companies boast some of the most experienced leadership teams in the home building industry averaging over 20 years of experience. The combined company will continue to be governed by TRI Pointe’s seasoned and respected executive management team. Barry S. Sternlicht will remain as Chairman of the TRI Pointe Board of Directors, which has been expanded from seven to nine directors. Doug Bauer will continue to serve as Chief Executive Officer of TRI Pointe, Tom Mitchell as President and Chief Operating Officer, and Mike Grubbs as Chief Financial Officer.
“Doug, Tom and Mike are a best-in-class executive team with deep managerial talent and a proven track record running a large, geographically diverse, growth-oriented public homebuilding company,” said Mr. Sternlicht, who also serves as Chairman and Chief Executive Officer of Starwood Capital Group, which financed TRI Pointe in 2010. “I am confident that they will build upon their past success and lead TRI Pointe to greater achievements as we look to take advantage of the enormous growth opportunities in the marketplace.”
TRI Pointe's leadership remains focused on executing a disciplined homebuilding strategy. The merger with WRECO is expected to provide TRI Pointe with significantly enhanced scale, with more than 3,400 new home deliveries and $1.6 billion in revenue on a historical combined basis over the past twelve months ended March 31, 2014.
A distinguishing feature of the TRI Pointe operating strategy is that it will carry all six of the brands forward as operators in their respective regions. Big public builders have tended to absorb even the strongest of the company brand names under their primary brand umbrella after an acquisition, although there are many exceptions. TRI Pointe's plan, however, is the first one that concretizes a future for each of the six home building names.
"Big public builders have deep pockets, economies of scale, and the ability to move capital into place, but what we hope to gain with the regional brands that the big ones don't have is nimbleness," said TRI Pointe's Bauer. "The vision for TRI Pointe from the time we started it has been as 'the next generation' of home building companies, and this structure gives us the best of both worlds. We have local management talent focused on the bottom line, with the clout and support and scale of a large organization behind each operating team. This model affirms that this is a local business and it's best dealt with on a local scale."
Bauer says he's debated this issue of integration and the multiple brand names with his peer CEOs, and one can imagine that he hasn't heard the last of the challenges to the strategy.
"The one thing you've got to focus on here is operational excellence," Bauer said. "Given the time we had to prepare for this, we have systems in place where everyone can be measured even though those businesses are autonomous, what we have is operational accountability."
Of particular interest in this vein is the perceived overlap between TRI Pointe's operating footprint and Pardee Homes in Southern California, which will report through to TRI Pointe chief operating officer Tom Mitchell. In fact, however, Bauer points out that Pardee's 15,000 plus lots are mostly complimentary to TRI Pointe's, with Pardee ranking as the No. 2 builder in the San Diego market, and its dominance in Pacific Highlands Ranch.
"I could see eventually doing brand extensions by building Pardee and TRI Pointe in the same neighborhoods at some point," said Bauer.
"What we're trying to build is a culture, a family of companies," Bauer said. "In any industry, the best companies act like a family."
As a competitor, TRI Pointe's new footprint puts it in head-to-head combat with the 10 biggest nationals for talent, trade capacity, and home buying customers, the edge being its robust supply of owned and controlled lots in all of its operating areas.
One would expect that since the Weyerhaeuser companies had been operating under a Real Estate Investment Trust business model, some fair number of the growth and profitability strategies and tactics under Weyerhaeuser may have been constrained, and now they'll get attention and underwriting to grow under the TRI Pointe model.
Too, the opportunity among the Weyerhaeuser operators to work as "pure" home building organizations aligns with business objectives that are about a business largely different than the timber and wood products business Weyerhaeuser was and is most focused on.
They can, as they say, go forward in the business of building homes for people to raise families in.