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Exclusive: Tri Pointe in advanced talks to buy Weyerhaeuser home unit - sources

By Soyoung Kim

NEW YORK (Reuters) - Tri Pointe Homes Inc , a homebuilder backed by Barry Sternlicht's Starwood Capital Group LLC, is in advanced talks to buy Weyerhaeuser Co's homebuilding division for about $2.7 billion, according to people familiar with the matter.

Weyerhaeuser, which announced in June it was reviewing strategic options for the homebuilding and real estate development unit, is trying to finalize a sale to Tri Pointe as soon as in the next two weeks, the people said on Monday.

Under the proposed terms of a deal, the two companies are using a structure known as Reverse Morris Trust - a transaction that allows a parent company to sell its subsidiary in a tax-efficient manner, the people said.

Shares of Tri Pointe surged as much as 12 percent after Reuters reported the talks on Monday, and ended up 5.8 percent at $14.89 on the New York Stock Exchange. Weyerhaeuser shares ended flat at $30.09.

Discussions with Tri Pointe are still continuing, and the outcome may yet change as other homebuilders remain interested in buying the Weyerhaeuser unit, cautioned the people, who asked not to be named because the matter is confidential.

Taylor Morrison Home Corp and Brookfield Residential Properties Inc, the land developer controlled by Brookfield Asset Management , are among the companies that have also been in talks with Weyerhaeuser about buying the division, the people said.

Representatives for Weyerhaeuser, Starwood Capital and Brookfield declined to comment. Tri Pointe and Taylor Morrison did not respond to requests for comment.

The so-called Reverse Morris Trust structure is used when a parent company has a subsidiary that it wants to sell without paying tax. That subsidiary will usually have a bigger market capitalization than the company it wants to merge with, and its shareholders would own more than 50 percent of the combined entity.

For example, Tri Pointe has a market capitalization of just over $450 million - far smaller than the roughly $2.7 billion expected valuation of the Weyerhaeuser unit.

Tri Pointe went public in January, one of the first U.S. homebuilders to do so in almost a decade as the housing sector rebounds from the trough of the financial crisis on the back of low mortgage rates and rising prices.

Fellow homebuilder Taylor Morrison, whose owners include private equity firms TPG Capital and Oaktree Capital Management LP, also went public in April.

Irvine, California-based Tri Pointe, led by Chief Executive Douglas Bauer, builds houses in California and Colorado. Barry Sternlicht, whose Starwood owns a large stake in the company, is chairman of Tri Pointe.

Timber conglomerate Weyerhaeuser said in June it was considering a range of alternatives for Weyerhaeuser Real Estate Company (WRECO), including whether to continue to hold it, or a merger, sale or spin-off.

It said the business is one of the 20 largest homebuilders in the United States, and that the "improving fundamentals" of the housing market make it a prudent time to explore strategic alternatives for the business.

The Weyerhaeuser unit's biggest brand is Pardee Homes, which builds houses in Southern California and Las Vegas. Its other brands include Trendmaker Homes in Texas and Maracay Homes in Arizona.

Weyerhaeuser, based in Federal Way, Washington, for several years has pared its business lines to focus on its timber business.

In 2006, Weyerhaeuser used a Reverse Morris Trust structure to exit another one of its businesses. It spun off its fine paper business to be combined with Domtar , a deal that left Weyerhaeuser stockholders with 55 percent ownership of the merged company.

(Reporting by Soyoung Kim in New York; Additional reporting by Greg Roumeliotis and Ilaina Jonas; Editing by Phil Berlowitz and Eric Walsh)

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